Some people believe it’s important to never let any stock position grow too large. While I understand that reasoning, I have no problem letting Amazon.com, Inc. (NASDAQ:AMZN) stock continue to grow as a part of my portfolio. Currently, it’s my largest personal position, accounting for 9% of all my real-life holdings.
There are two big reasons every investor should consider owning Amazon.com, Inc. (NASDAQ:AMZN) stock — and two threats every investor needs to know about before buying in.
An equation for greatness
Wide moat + innovation = excellence. That represents the DNA of the world’s greatest companies. By a wide moat, I mean that a company has sustainable competitive advantages that will make it nearly impossible for any serious competition to arise.
Amazon.com, Inc. (NASDAQ:AMZN)’s moat comes from its laser focus on customer satisfaction. The company’s network of fulfillment centers across North America, Europe, and China ensures that when you order something online, it will arrive at your doorstep just 48 hours later. Each of these centers costs billions to build, stock, and man.
To get an idea for how large each of these centers is, take a look at this one, located in Chattanooga, Tenn.
If you look at the breadth of these fulfillment centers, with locations spread across the world, you can understand that it would cost the GDP of a small country to try to match Amazon’s scope.
If that’s not enough, Amazon.com, Inc. (NASDAQ:AMZN) is selling its products for such razor-thin margins, and offering such a great shipping deal to Amazon Prime customers, that no one could make money competing with Amazon no matter how hard they tried.
And when it comes to innovation, I consider Amazon second to none. CEO Jeff Bezos has been able to take the company from primarily selling books, to creating e-readers that offer higher margins, to supplying the world with cloud computing solutions, and — most of all — to being a one-stop shop for e-commerce.
When you combine this wide moat with innovation pushing the company forward, you have a recipe for stellar business. The best way to measure is by the astonishing growth in Amazon.com, Inc. (NASDAQ:AMZN)’s revenue. Back in 2008, the company brought in $19 billion in sales. Fast-forward just four years, and that number jumped to $61 billion. That’s a 34% increase per year, and with online purchases accounting for less than 10% of all purchases, there are still tons of room for growth.
Some will criticize Amazon for spending so much money on technology and building out infrastructure, to the point where it’s barely profitable. That’s fair, but I think now, while e-commerce is still in its infancy, is exactly the time to forgo short-term profits in search of long-term dominance.
Two big red flags
Of course, an investment in Amazon.com, Inc. (NASDAQ:AMZN) stock isn’t foolproof. For starters, if Bezos were to leave, I would have to seriously reconsider my investment. While Amazon’s wide moat would survive his departure, I would be wary that the culture of innovation could continue to the same extent. Bezos has been a visionary driver for the company; his influence cannot be underestimated.
Secondly, in a few decades, I could see 3-D printers presenting a serious threat to Amazon. Industry leaders Stratasys, Ltd. (NASDAQ:SSYS) and 3D Systems Corporation (NYSE:DDD) have already developed machines that can make several products within your own house — given that you have the specs available.