2 Reasons Amazon Stock Is a Buy and Hold Forever

Amazon (NASDAQ:AMZN) stock has already proven to not just be a growth stock but a phenomenon — one that could still be a phenomenal buy.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published June 28, 2024 4:20 pm EDT

Amazon (NASDAQ:AMZN) has proven to be a buy-and-hold-forever investment, and there’s plenty of historical data and performance metrics to back up this claim. Since its initial public offering (IPO) in 1997, Amazon’s stock has skyrocketed.

Adjusted for splits, the stock debuted at around US$1.50 per share. Fast forward to today, and we’re talking about a stock price that has soared to over US$3,000. That’s an astronomical increase of more than 200,000%! If you had invested just $1,000 at the IPO, you’d be sitting on a fortune now.

Is it still a buy-and-hold stock? Let’s look at two reasons why that’s a major “yes.”

A shopper makes purchases from an online store. — Image source: Getty Images

Past performance means current dominance

Amazon’s financial performance has been nothing short of stellar. In 2020, during the pandemic, while many companies struggled, Amazon thrived. Its net sales jumped 38% year over year to US$386 billion, and net income more than doubled to US$21.3 billion. This growth wasn’t a one-off. Amazon has consistently delivered strong earnings growth over the years, driven by its diversified business model.

Speaking of diversification, let’s look at Amazon Web Services (AWS). AWS is Amazon’s cloud computing arm, and it’s a real cash cow. In the first quarter (Q1) of 2021 alone, AWS brought in US$13.5 billion in revenue, up 32% from the previous year. AWS’s operating income was a whopping US$4.2 billion, accounting for more than half of Amazon’s total operating income. This segment’s impressive performance underscores Amazon’s ability to generate profit from multiple sources.

But what about Amazon’s e-commerce business? Well, it’s been a dominant force globally. During the pandemic, consumers flocked to online shopping, and Amazon was their go-to platform. Its Prime membership program, offering perks like free shipping and access to streaming services, has been a key driver of customer loyalty. As of 2021, Amazon had over 200 million Prime members worldwide, each contributing to recurring revenue.

Lastly, consider Amazon’s robust logistics network. The company’s ability to deliver products swiftly and efficiently is a testament to its operational excellence. In 2020, Amazon spent US$44 billion on shipping, highlighting its commitment to customer satisfaction.

Future favourite

According to Synergy Research Group, AWS holds about 32% of the global cloud market share, towering over competitors. With the cloud computing market expected to grow at a compound annual growth rate (CAGR) of 17.5% from 2021 to 2026, AWS is set to ride this wave. As more companies migrate to the cloud, AWS’s growth potential remains enormous.

Next, let’s dive into Amazon’s e-commerce behemoth. For instance, Amazon Prime, with over 200 million members globally, offers unbeatable value with perks like free shipping, Prime Video, and exclusive deals. This kind of customer loyalty ensures a steady stream of recurring revenue.

Let’s not forget about Amazon’s advertising business. It’s a lesser-known gem but incredibly lucrative. Amazon’s advertising revenue hit US$7.9 billion in Q1 2021, a 77% increase from the previous year. With its treasure trove of consumer data, Amazon offers highly targeted advertising solutions that are increasingly attractive to marketers. This segment’s rapid growth adds another layer of profitability to Amazon’s diverse portfolio.

Finally, consider Amazon’s international expansion. While already a global powerhouse, Amazon continues to penetrate new markets. Countries with growing middle-class populations present vast opportunities for Amazon’s e-commerce and AWS services. For instance, Amazon’s recent investments in India and Southeast Asia are paving the way for future growth in these burgeoning markets.

Bottom line

To sum it all up, Amazon’s past market performance is a compelling reason to buy and hold its stock forever. With its impressive growth, diversified revenue streams, strategic innovations, and customer-centric approach, Amazon has proven time and again that it’s not just a company; it’s a phenomenon.

And even now, Amazon’s future growth opportunities are as vast as they are varied. From dominating cloud computing with AWS, revolutionizing e-commerce logistics, and disrupting health care, to innovating in physical retail and expanding internationally, Amazon is a juggernaut. So, hold on tight and enjoy the thrilling journey ahead!