When was the last time you bought something from Amazon (AMZN 3.90%)? Yesterday? This week? If you're like most Americans, it probably hasn't been much longer than that. Even if you haven't, I bet if you looked out your window right now, there's a good chance you'd see one of their drivers delivering a package to your neighbors.
The tech and retail giant has solidified its place as an everpresent part of modern life. Its deliveries happen with such frequency and such reliability that -- get this -- it is now the most trusted institution, not just company, in the U.S. More Americans trust it than those who trust the Supreme Court or the military.
This is an incredible position to be in as largely a consumer-facing company -- one that many others would covet. Here are three reasons why it's well-positioned to continue its success.
Its bread and butter, retail, is still going strong
Jeff Bezos started the company as an online bookstore -- a somewhat niche business, or so it may have looked to many at the time. Today, Amazon delivers a mind-boggling number of packages of every kind of product under the sun and does it at lightning speed. Last year, the company delivered 4 billion packages in the U.S. alone no later than the day after they were ordered. This incredible efficiency, speed, and reach are part of the magic that makes Amazon the biggest online retailer around.
It currently owns more of the domestic market than its next 10 competitors combined. That's dominance. Despite its position at the front of the pack, it's still growing. Take a look at this table showing its consistent year-over-year sales growth for the past four years.
| Year | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|
| Growth | 12% | 13% | 18% | 38% |
Data source: Company filings, North American sales growth.
Changes to Prime Video will boost Amazon's ad revenue
Amazon has built up its Prime Video streaming service into a real contender. The company claims it has 200 million monthly viewers as of this spring. That's a lot of eyeballs.
Here's the key. Until recently, Prime Video was included in a normal Prime subscription and did not contain ads. In the fourth quarter of 2023, the company adopted a tiered system like much of the streaming industry. Prime members are shown ads unless they fork over an additional $2.99 a month -- a number that is bound to rise over time.
This opens up a stream of revenue the company did not have access to before, through both additional subscriber revenue and from advertisers hungry to access those 200 million viewers. These ads can be highly targeted given Amazon's intimate knowledge of its customers' buying behavior. That makes the ads a very valuable commodity.
Remember, Amazon is already the third-largest advertiser, behind Alphabet and Meta. Since the move, the company reported a 26% year-over-year revenue jump for Q4 2023 and a 24% year-over-year revenue jump for the first quarter of 2024 for the segment.
The company is doubling down on the cloud in the era of AI
Amazon's cloud business, Amazon Web Services (AWS), is the dominant player in the space. It owns 31% of the market -- more than Microsoft's 25% and Google's 10%. Amazon's lead has been shrinking somewhat. It dropped from last year's 32%, while Microsoft picked up that 1%. Competition to control the cloud has always been fierce, but these tech behemoths know that is even more true in the age of generative artificial intelligence (AI).
The company is investing heavily to shore up its position. It has dropped $4 billion into its generative AI play, Anthropic. The company makes ChatGPT competitor Claude. Part of Amazon's deal with Anthropic is to be the primary provider for all of Claude's cloud needs.
Beyond this, Amazon is working closely with Nvidia to ensure it has a steady supply of its latest chips. This allows AWS users to run "large language models faster, at massive scale, and more securely than anywhere else," as Adam Selipsky, AWS CEO, stated recently.
Keep an eye on this horse race. It will be a key driver of Amazon's success moving forward, but it's hard to see a future where Amazon doesn't deliver here, so it's an issue of degree. The other arms of Amazon's business will make up for anything other than a complete failure of AWS.
