BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.
The world’s biggest online retailer, Amazon seems to possess every ingredient of the cocktail of success. It has a superstar CEO in Jeff Bezos, an enduring competitive advantage in the world of online retail and even a range of innovative products meant to keep it at the cutting edge of technology.
Amazon is involved in e-commerce, cloud services, prescription drugs, groceries and it pushes products such as the Alexa personal assistant, Kindle and Amazon video.
Though at first glance, online retail seems like it is the main engine behind the profits of the giant, that is not the case. Most of Amazon’s revenues originate from its cloud services.
From the perspective of Amazon investors, this fact is of the essence. To learn what drives the price of a stock, one has to take a look at where and how the company in question makes its money.
How Amazon makes its money
As mentioned, AWS (Amazon Web Services) is responsible for most of the money generated by Amazon. What’s more, AWS revenues are trending upwards aggressively, given the fast-growing nature of the space that generates them.
In 2018, Amazon possessed a share of 35% of the cloud market. Despite the high profile nature of the competition (the cloud space features actors such as Google, and Microsoft), Amazon’s domination of the market is impressive. In 2018 alone, this operational branch generated some $26 billion in revenues.
Amazon’s e-commerce business is a more complicated and less profitable branch. It goes without saying that the company absolutely dominates this vertical as well. It has disrupted commerce in several ways over the years, putting countless competitors and potential competitors out of business.
In 2018, the company handled some 50% of all online sales in the US. The most profitable sales result from various sales arrangements Amazon has set up with retailers such as Nike. While the US side of the business is indeed profitable, that is not always the case with Amazon’s e-commerce offering.
Its international sales are rougher sailing: in 2018, such sales resulted in a loss of about $2 billion for Amazon.
That considered, it is obvious that e-commerce is not as significant a price-driver for Amazon stock as cloud services are.
Physical retail has been a significant dimension of Amazon’s business since 2017. After the company acquired Whole Foods, it gained access to thousands of physical retail locations all over the US.
Apparel and pharmaceutical goods were thus integrated into the company portfolio.
The PillPack acquisition of 2018 opened yet another online avenue for Amazon’s forays into the prescription drug industry.
In addition to its US-based expansion, the company has been experimenting with pop-up stores all over the world.
Delivery capabilities are also a major part of the Amazon equation. The company has embarked on a massive expansion in this regard as well.
Digital advertising is thought to be one of the most aggressively growing markets and Amazon has a finger in this cookie-jar as well. Right now, it has firm grip of around 10% of this market.
BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.