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Amazon.com, Inc. (AMZN)’s Future Is Bright, But It Needs To Capitalize On This

Published on May 10, 2013 at 9:36 am by The Motley Fool in News
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While the e-tailer has lost a slight price advantage with the growing imposition of state sales taxes on online retailers, it has thereby gained the freedom to build warehouses wherever they are needed. Amazon has taken advantage of that freedom by opening 20 new fulfillment centers last year alone. With new locations spread across the country, the number of products that Amazon can deliver quickly and cheaply only grows. And with that improvement, the company can reach deeper into just about any retail sector you can name. Overall, product sales growth has outpaced Amazon’s media segment, which includes sales of digital goods like e-books and movies. Amazon.com, Inc. (NASDAQ:AMZN) Web Services, or AWS, is growing even faster — albeit from a much smaller base.

Source: Amazon 2012 10-K: Fiscal Years 2010-2012.

Another avenue for Amazon’s growth is in service sales. The company makes money by providing vendors access to its world-class selling infrastructure. Nearly 40% of Amazon’s sales come from these third-party merchants. And those sales are big profit drivers. Amazon collects higher margins from them than on its own products because access to its powerful brand and stellar logistics are worth a premium to sellers. This marketplace is still growing fast, too, outpacing Amazon’s overall growth last year

And finally, there’s the cloud services division, or AWS, which currently just qualifies for a footnote in the e-tailer’s financial statements. However, that won’t be true for long. The cloud services industry is forecast to balloon into a $70 billion market by 2015. With Amazon leading the industry right now in terms of customer base and service portfolio, AWS is well positioned to hold that lead as the market blossoms. That could make it the biggest driver of revenue and profits for the company in a matter of years. In fact, management expects the division to eventually rival its product sales in terms of size. While Amazon collected just about $2 billion in sales through AWS last year, Wall Street analysts expect that number to jump to more than $15 billion by 2020.

The Foolish bottom line
The good news is that despite years of phenomenal growth, Amazon.com, Inc. (NASDAQ:AMZN) hasn’t come close to tapping its full potential. The bad news, though, is that the company will need to fully utilize these opportunities to keep outperforming against bigger and badder rivals in order to justify today’s stock price.

The article The Huge Opportunities Ahead for Amazon.com originally appeared on Fool.com and is written by Demitrios Kalogeropoulos.

Fool contributor Demitrios Kalogeropoulos owns shares of Costco Wholesale. The Motley Fool recommends Amazon.com and Costco Wholesale. The Motley Fool owns shares of Amazon.com and Costco Wholesale.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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