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Amazon (AMZN) Stock | NASDAQ: AMZN

From Zero to Everything

Amazon.com, Inc. (“Amazon”) went from zero to one everything – starting as a simple online bookstore in the 1990s, every piece of the puzzle seemed to fall into place over the years to create the $1+ trillion leader in ecommerce, cloud, and ecommerce channel advertising we know today, the everything store.

Amazon is a company like no other. It was a technology company when nobody saw it, believed it, or even thought it. On the surface, it was just an online bookstore. Deep down, it knew its opportunities were endless. It pioneered cloud computing with AWS, created the greatest online shopping experience based on price, selection, and convenience, and designed the market-leading Kindle eBook readers. Today, Amazon sees no limits – it operates in streaming, advertising, cloud computing, ecommerce, physical stores, consumer goods, publishing, and more.


Adrian Iwanicki

Equity Analyst






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Where Are We Now

Updated on: 12/15/2021

Conviction Score


It is still Day One at Amazon today. Growth in Prime users is strong and same-day/one-day delivery may soon be a reality for many products in most cities. Amazon has also been making strides in areas outside of e-commerce – cloud services, gaming, entertainment, and advertising, among others. The stock has gone nowhere over the last year but think the company has lots of room to run.

  • Cloud services are increasingly important as companies digitize their businesses and Amazon’s AWS is the top cloud platform to help organizations make these shifts.

  • Amazon's high-margin businesses are growing fast and becoming a larger piece of the overall revenue pie. Third-Party Selling Services, Subscriptions, AWS, and Other (mainly advertising) makes up 48% of revenue today vs. 28% in 2015. Third-Party Selling Services topped $100 billion for the first time in the 12 months ended Sep 30, 2021 and is growing faster than online stores.

  • Amazon added almost 300 million sq. ft. of warehouse space in the last two years (more than the last decade combined) and seeks to hire tens of thousands of employees to meet strong and growing e-commerce demand.

Investment Thesis

Amazon was, is, and will always be a company that puts the customer first. By dialling in on fostering exceptional customer experiences and value, the company kickstarted a never-ending virtuous cycle that started from the very first customer and continues to benefit every customer to this very day.

  1. Amazon is a global technology conglomerate that generates revenues from six major areas - Online Stores, AWS, Third-Party Selling Services (“3PSS”), Subscriptions, Physical Stores, and Other (mainly advertising). The company has over 200 million Prime subscribers, almost 500 million square feet of real estate to drive its operations, and it is hungry for more.

  2. Amazon has one of the widest moats across its main offerings – ecommerce, cloud computing, and advertising. The virtuous cycle that begins and ends with the customer is the source of high switching costs, powerful network effects, cost advantages, high barriers to entry, and a reputable brand name.

  3. Amazon faces potential risks with Jeff Bezos stepping down as CEO, antitrust concerns posing a perpetual threat, Microsoft Azure gaining ground in the cloud market, margin pressure from growth investments, and competition from incumbents across many saturated markets.

  4. Secular industry tailwinds and competitive advantages in ecommerce, cloud computing, and advertising will buoy Amazon’s financial and competitive position throughout this decade at a minimum.

  5. Growth and reinvestment opportunities are vast, laying the groundwork for a long growth runway.

The Basics

Amazon was founded in July 1994 by Jeff Bezos, who is now alternating spots between first and second place as the world’s richest man alongside Bernard Arnault, the founder and CEO of LVMH Moët Hennessy Louis Vuitton.

Originally created to be an online bookselling platform, Bezos sought to use the Amazon.com platform and technology to facilitate online product sales for anyone, anywhere.

Amazon was not the first company to sell goods online, but it understood the opportunity inherent in leveraging the internet to conduct sales and undertook the strategy to grow as quickly as possible to succeed in ecommerce.

Grow quickly, it did – revenues grew from $16 million in 1996 to $610 million just two years later. By 1998, music and video sales commenced; in 1999, Amazon ventured into video games, software, home improvement, toys, games, electronics, and many other categories.

By 1998, music and video sales commenced; in 1999, Amazon ventured into video games, software, home improvement, toys, games, electronics, and many other categories.

Early Rendition of Amazon.comSource: Quartz


Today, Amazon still owns relentless.com, the original domain purchased for Amazon when Bezos considered naming the company "Relentless". Even though the website redirects to amazon.com and proposal to call the company "Relentless" did not make the cut, the relentless drive to innovate surely survived.

Amazon is much more than just an ecommerce website that we purchase our toys, gadgets, and last-minute gifts on with free one-day or two-day delivery using Amazon Prime. It may seem that Amazon’s operations beyond ecommerce are relatively new, but the seeds were planted decades ago. Amazon Web Services (“AWS”), for instance, launched in 2002 to provide web services related to data and statistics for developers and marketers. AWS expanded in 2006 to offer the world’s first modern cloud infrastructure service. Early critics pushed back on Bezos’s claim that Amazon was a technology company from the get-go. They turned out to be wrong – Amazon is now one of the world’s largest technology companies with a market cap in the trillions.

Amazon generates its revenue from six major segments – Online Stores, AWS, Third-Party Selling Services (“3PSS”), Subscriptions, Physical Stores, and Other.

These six areas can be more broadly categorized into four main consumer group focal points:

  1. Consumers

  2. Sellers

  3. Developers and Enterprises

  4. Content Creators

Amazon Revenue Sources as a graphicSource: Visual Capitalist

The “Consumer” group uses Amazon for its selection, price, and convenience benefits across online (i.e., Amazon.com and country-specific domains, mobile app, Alexa, device, and streaming) and physical shopping locations (i.e., Whole Foods and others).

Amazon Prime brings together the ultimate selection-price-convenience trifecta through a membership program that primarily enables customers to take advantage of free unlimited one-day or two-day shipping on millions of items as well as access to unlimited streaming of movies, shows, music, file storage, and several other benefits.

Although non-Prime customers do not have access to the streaming services and free shipping, the website still offers low prices on a wide selection of millions of items all on one website. Amazon also makes and sells personal electronic devices, like the Kindle (e-readers), Fire TV (media player hardware for video, music, and games streaming), Echo (smart speakers), Ring (smart home security), and other devices and media content.

Amazon Physical StoresSource: Amazon.com

The bulk of Amazon’s ecommerce revenues are generated from Amazon inventory sales, however, 3PSS allow third-party vendors to sell their products through Amazon Marketplace, a platform that is so tightly and seamlessly integrated with Amazon.com that the average customer would not be able to tell whether they are purchasing inventory directly from Amazon or through a third party.

3PSS include services for sellers to grow their businesses, sell products in Amazon’s online and physical stores, and fulfill orders through Amazon. Amazon shares profits with these third-party vendors, earning revenue in the form of a fixed fee, percentage of sales, per-unit activity fees, interest, or a combination of any or all of these fee structures.

Shifting away from the main ecommerce network of consumers and sellers are the developers and enterprises that seek Amazon’s business solutions such as compute, storage, database, analytics, machine learning, and some other services.

AWS is Amazon’s platform that offers this wide array of services for developers and organizations of all sizes – startups, governments, educational institutions, and corporations.

The top AWS users include Netflix, Twitch, LinkedIn, Facebook, Adobe, and Twitter.

IaaS/PaaS Market Share

Source: IDC, Evercore ISI Research

Overall Cloud Market Share

Source: IDC, Evercore ISI Research

Amazon also provides advertising services to enterprise customers. Sponsored Ads and Stores provide vendors on the Amazon Marketplace with product, brand, display, and stores advertising to increase awareness of their product and brand and drive sales through the Amazon platform.

Amazon third-party vendors and non-vendor businesses who do not sell on Amazon can utilize Amazon DSP to reach audiences on and off Amazon, Amazon media platforms to engage streaming consumers, and the in-house Amazon Custom Advertising team to deliver curated advertisements.

Amazon Sponsored AdsSource: Amazon.com

Lastly, Amazon operates Kindle Direct Publishing (“KDP”), an online publishing service that allows small-scale, independent authors to self-publish their work for free within 5 minutes of submission. Once published, the eBook or paperback will appear on Kindle stores within two days and authors can earn up to 70% royalty on sales to customers across many countries and regions around the world. On top of KDP, several other services are available for musicians, filmmakers, authors, app developers, and other artists to publish and sell content through various media in the Amazon ecosystem.

That is not all - a comprehensive list of Amazon’s products and services can be found in Minterest’s easy-to-read list here.

Amazon’s financial results defy the laws of gravity and large numbers.

The largest segment, Online Stores, is the one growing slowest of the six even though it's what Amazon is mainly known for. However, AWS, 3PSS, Subscription Services, and Physical Stores are all growing at much faster rates. The non-Online Stores segments are quickly overtaking the slice of total revenues at Amazon.

The “Other” segment, which is primarily composed of Amazon’s advertising services, has compounded at extraordinarily high rates. At a market cap of almost $2 trillion, one would think Amazon’s growth opportunities would at least begin to dry up. Not quite – the company is poised to deliver stellar results at least over the next five years because of a few excellent strategic moves and overall positioning, as well as a few secular tailwinds that will prop up demand for Amazon’s services throughout the decade.

Amazon Revenue by Segment ($M) (Q3 2021)

Source: Amazon Investor Relations

Amazon’s margins are all healthy and improving amid rising Research & Development (“R&D”) and Sales, Marketing & Advertising (“SM&A”) expenses as a percentage of total revenue, as well as rising Capital Expenditures (“CapEx”) as a percentage of total revenue.

These margin improvements are the result of economies of scale and the internal rising tide of high-margin businesses (i.e., AWS, 3PSS, Subscription Services, and advertising). Despite the $100 billion worth of investments Amazon made in 2020 via R&D, SM&A, and CapEx, Amazon is growing sales at higher rates and churning out higher profit margins. This is indicative of high operating efficiencies, growing ROIC, and a powerful business conglomerate with a growth outlook that leaves many in disbelief.

Free cash flow margins have been under pressure as of late. The company is reinvesting heavily into fulfillment centres, capacity and logistics expansion, cloud infrastructure, and more.

We view free cash flow pressure as a good thing for the long-term investor — there are ample reinvestment and expansion opportunities for the business that will drive growth and help it win in the markets they target.

Competitive Advantages

One of the most profound concepts fostered by Amazon is the idea of a “virtuous cycle” focused on the customer. At Amazon, every move begins and ends with the customer in mind.

The result is exceptional customer experience, which leads to more traffic and product reviews, attracting more sellers, thus contributing to a greater selection across all product categories. The result? Improved customer experience, which kicks off the virtuous cycle all over again.

Amazon Growth Network Effect as a graphicSource: Amazon.com

The virtuous cycle inherently explains the impact of a network effect – by uniquely focusing mainly on the customer, sellers experience more interest and sales in their products as customers return to Amazon.com for their shopping. As the customer base grows, so do sellers and their product selection, and vice versa.

AWS is the most widely known and used cloud platform in the world, and Amazon’s advertising segment is gaining ground at a rapid pace. AWS and both sponsored and non-sponsored advertising benefit from network effects.

The former benefits from a vast user base of some of the largest enterprises in the world, increasing the likelihood that other organizations searching for a cloud platform will choose AWS.

Additionally, AWS improves as more users initiate usage of the platform, collecting data from many customers to create a more effective suite of cloud services and innovate in and around the AWS ecosystem to provide an ever-growing number of services to meet organizational needs.

Currently, AWS offers over 200 fully featured services across the ecosystem, the most depth and breadth of services out of any of the major three cloud providers (i.e., AWS, Azure, GCP). The latter benefits from network effects in two distinct ways – companies using sponsored advertising benefit from the large (and growing) Amazon customer base to drive sales, and those on non-sponsored advertising solutions benefit from a combination of data-driven programmatic advertising and popular Amazon media platforms, which are flush with users.

Stemming from the aforementioned network effects are cost advantages, high barriers to entry, and the benefit of a global and highly reputable brand name. In other words, these moat characteristics are all interconnected - Amazon wins because it can offer products at a lower price than almost any company in the world, which gives it its scale, a deterrent of competition in and of itself.

According to Evercore, over 80% of Amazon customers in their survey are either “very satisfied” or “extremely satisfied” with Amazon, alluding to the fact that the company puts the customer first.

Additionally, the company has over 200 million Prime customers, 475 million square feet of space (i.e., offices, distribution centres, etc.), and combined R&D, SM&A, and CapEx costs and investments north of $100 billion.

This is an unattainable feat for virtually any company in the universe. We believe these factors contribute to the reputable brand name of Amazon, which in turn helps drive adoption of other services, like AWS and advertising.

Total Square Footage by Year (M)

Source: Amazon 10-K Filings (2010-2020)

Although it may seem that products and services sold on Amazon.com have low switching costs given the plethora of other ecommerce websites and streaming services available to consumers, we believe consumers face high switching costs when considering the power of the selection-price-convenience trifecta. For the roughly 200 million Prime customers around the world, there is virtually no viable alternative that offers the variety of products for the low prices and free express shipping on millions of items.

At a cost of around $100 per year, Prime customers break even rather quickly considering the amount of shopping they do on the platform. According to Evercore research, Prime customers spend 2 – 3 times more money per month and shop twice as frequently as non-Prime customers. Additionally, more than 75% of Prime customers purchase products 2 – 3 times per month on Amazon. 

We believe this consumer behaviour and the extremely attractive price point of a Prime membership for the value it offers (i.e., free one-day and two-day shipping, Prime video, unlimited music streaming, and Amazon Prime Reading) brings to light the strength of the trifecta and how unattractive single-store direct-to-consumer alternatives appear to be in comparison regarding price, selection, and convenience. Why shop anywhere else when you’ve got Amazon carrying most, if not all, of your favourite products?

AWS and Amazon Advertising should not be left out of the “switching costs” conversation. AWS customers may be reluctant to leave due to tangible and intangible costs as they relate to the following decision factors:

  1. AWS provides the most services out of any cloud provider, making it rather unlikely that there is much benefit in a customer switching cloud providers.

  2. Cloud functionality may be similar, but not quite the same between providers. It may cost lots of time and money to recalibrate processes, databases, and functionalities between cloud providers.

  3. Cloud operations are massive – it is unlikely internal organizational teams will be able to learn another cloud platform and its uses quickly enough to avoid business and operational interruptions.

Amazon Advertising customers looking to leave the platform would also face enormous direct and indirect costs. For one, sponsored ads are hosted on the largest ecommerce website on the planet – what better place to advertise your product than a website where hundreds of millions of visitors are already shopping for products?

Further, Amazon’s non-sponsored advertising and demand-side platform (“DSP”) programmatic advertising could provide a more compelling offering than other DSPs, such as The Trade Desk, given Amazon’s reach across proprietary sites and apps on top of third-party exchanges where many DSPs solely operate.

Advertisers on Amazon leverage the unimaginable power of Amazon consumer data to place effective and relevant ads across many platforms – we believe most advertisers would face internal backlash and reluctance towards cutting off Amazon’s advertising services.

Ecommerce: The Raging Bull

If we all rewind to the beginning of the pandemic, we all knew ecommerce would thrive and traditional retail stores would face challenges amid widespread lockdowns.

In 2020, ecommerce penetration (i.e., ecommerce sales as a percentage of total retail sales) experienced about 4 years of expansion within one year alone. Ecommerce sales represented about 27% of total retail sales of addressable categories, which excludes gasoline, cars, grocery, and pharmaceuticals.

Amazon Ecommerce Penetration graphed

Although this is a drastic increase over pre-pandemic levels and increases are expected to normalize, ecommerce still has a long runway before it hits maturity.

Amazon is uniquely positioned to continue its winning streak in ecommerce as customers look to the Amazon supply chain advantages, mix of first- and third-party product offerings, trifecta advantages, and the value of the Prime membership as their reasons for choosing Amazon as the best place to do online shopping.

According to Guidepoint and Wells Fargo research, 46% of survey respondents expect their Amazon spending to remain unchanged after the pandemic and 78% believe they will continue to spend more on Amazon than in 2019. The pull-forward of ecommerce penetration is not surprising, and much of this behaviour is sticky – at least for Amazon.

Top Ecommerce Companies RankedSource: eMarketer

The company also has a massive lead in market share – over 40% of total ecommerce sales will be conducted by Amazon. In stark contrast, Walmart, Amazon’s main ecommerce competitor, will only capture 7% of the market. We believe this displays Amazon’s role in the market as the consumer’s top pick for online shopping.

Other ecommerce platforms, like Walmart, eBay, and Apple appear to merely serve as niche “gap fillers” for goods that are difficult to obtain or unavailable on Amazon.

Advertising is Just Getting Started

In just about every way possible, the world is constantly moving towards some shape or form of digitalization. Traditional forms of advertising are out, and digital advertising is now in. Digital ad spending is set to grow to almost 70% of total media ad spending by 2024 from about 58% today.

Advertisers are shifting from print, linear TV, and other traditional forms of advertising towards their digital counterpart considering growing mobile phone penetration, data consumption and online activity, and consumer adoption of connected TV and streaming services.

Advertising revenues make up almost all of the “Other” segment, the fastest-growing segment at Amazon. Roughly 90% of Amazon’s ad revenues are derived from ecommerce channel advertising, a niche Amazon had carved out for itself using its own ecommerce platform.

Amazon’s massive network of Prime and non-Prime customers and third-party sellers has placed Amazon in a position to control over 75% of the ecommerce channel ad market worth about $24 billion. Walmart is the second largest player in this realm, but it captures far less of the market – only 6.5%. We believe this early lead will be incredibly rewarding to Amazon.

As we’ve said before – what better place to advertise your product than Amazon.com, where loyal Amazon consumers go to shop? Amazon’s large network of media assets and DSP service that provides programmatic advertising across Amazon and non-Amazon websites and apps also present compelling opportunities for advertisers to showcase their products and services.

Digital Ad Spending WorldwideSource: eMarketer
Ecommerce Channel Ad Spending graphedSource: eMarketer

AWS to the (Cloud) Moon

Like ecommerce platforms, cloud providers have been offering their services for over a decade at this point, yet adoption is still in an infant stage. JPMorgan estimates that only 15% of workloads around the world are in the cloud, a far reach from where it can (and should) be. There are many advantages to shifting from on-premises locations onto the cloud – lower IT costs, almost infinite computing power, faster deployment, implementation, and scalability. In a decade when 5G, the Internet of Things, edge computing, and growing data consumption will change how the world looks today, it should come with no surprise that outsourced cloud adoption is expected to accelerate exponentially.

AWS benefits from first-mover advantage and the breadth and depth of its 200+ services provided on the platform. It controls almost 60% of the infrastructure-as-a-service (“IaaS”) and platform-as-a-service (“PaaS”) combined market, ahead of Microsoft Azure and Google Cloud Platform at 34% and 8% market share, respectively. Although Microsoft leverages its reputation among the corporate community to provide organizations with a full and convenient IaaS, PaaS, and software-as-a-service (“SaaS”) suite of services to capture 50% of the overall cloud market share, Amazon leads where it matters most – IaaS and PaaS, which will both experience growth of over 25% through 2024 while SaaS grows at about half the CAGR.

Amazon Cloud Growth

We believe AWS will maintain its lead and continue to capture a significant portion of the growing TAM for the following reasons:

  1. AWS has significantly more services, features within those services, and the deepest functionality within those services than any other cloud provider.

  2. AWS has the strongest reputation and largest network of users among the top three cloud providers. The AWS Partner Network (“APN”) is robust and fosters a community of partners that build AWS-derived solutions for sale through the platform. More than 90% of Fortune 100 companies and most of the Fortune 500 companies use the APN.

  3. AWS has the longest track record of operational expertise as the longest serving cloud provider while consistently growing and maintaining the first-place spot in the IaaS / PaaS market.

  4. AWS has the largest network of global cloud infrastructure, playing into the technological trends which can only be enabled with low latency and massive computing power.

Amazon’s Opportunities are Seemingly Endless

Amazon’s opportunities don’t end with their current ecommerce, cloud, and advertising offerings. Most recently, Amazon announced plans to acquire MGM Studios for $8.45 billion.

The largest proposed purchase since the $13.7 billion Whole Foods acquisition in 2017 may appear expensive on the surface, but the true rationale behind this deal is to leverage MGM’s filmmaking legacy and content base of 4,000 movies and 17,000 TV shows to expand on the current Prime membership base of over 200 million.

Amazon Prime Video would become more robust and ultimately drive the virtuous cycle to attract more Prime members, who tend to spend more on the website as well. Every move Amazon makes comes back to the trifecta and the virtuous cycle, both concepts that revolve around customer experience and value.

Graphic of Amazon M&A

We note a list of non-exhaustive list of compelling opportunities with potential for asymmetric financial, operational, and / or competitive upside:

  1. Luxury Stores – Launched in September 2020, “Luxury Stores” is a separate portion of the platform designed to sell first-party luxury products. Luxury brands were historically reluctant to list products on Amazon over fears of lack of control over content, experiences, and services, as well as shopper preference for in-store experience. Lady Gaga recently launched her makeup line exclusively on Amazon, which may alter sentiment for the better going forward.

  2. Physical Pharmacy – Amazon is considering a move into the brick-and-mortar world of pharmaceuticals. Additionally, Amazon is exploring the option to place pharmacies inside existing Whole Foods locations. This move would build on Amazon’s 2018 acquisition of PillPack, a company that provides pre-sorted doses of various prescription drugs.

  3. Amazon Go and Other Physical Stores – The cashier-less Amazon Go stores (i.e., Amazon Go and Amazon Go Grocery) use Just Walk Out technology that allows customers to enter the store using the Amazon Go or Amazon shopping app and simply walk out with their desired items. Amazon is pioneering a no-queue world, the ultimate form of convenience for the modern in-person shopper.

Amazon has a long track record of exercising optionality even though it started out as “just an online bookstore” – AWS, Amazon Prime Video, Kindle, Fire TV, Advertising, and Alexa are just a few examples of the successful products and services millions of people now use daily. We believe Amazon will continue to innovate, take risks, exploit optionality, and succeed.


Amazon established a wide moat across several markets, but its moat does not protect it from all forces – internal or exogenous. We believe the factors presented below represent some of the greatest risk to Amazon’s financial, operational, or competitive positions across all time frames:

  • Amazon operates across many saturated markets and faces competition from well-established incumbents in each area (ex. Streaming – Disney+ and Netflix; Physical Stores – Costco and Walmart; 3PSS – Etsy, eBay). Lack of focus, poor strategic moves, and dilutive mergers or acquisitions in any of its segments may result in lost market share and in more severe cases, a full exit from the segment.

  • AWS competes mainly against Microsoft Azure, a cloud provider that has been growing faster than AWS and controls the overall cloud market due to its well-known business solutions and integrated IaaS-PaaS-SaaS platform. AWS’s lack of a complete suite of SaaS services, consumer industry reluctance of AWS adoption due to competition concerns, and Microsoft’s strong corporate relationships could result in Microsoft taking over AWS’s controlling position in the IaaS / PaaS market.

  • Amazon’s sheer size raises constant antitrust scrutiny from governments around the world. The timing, severity, and outcome of these investigations are deeply uncertain and could result in Amazon being broken up into several smaller companies and depressed valuations if shareholders see fewer opportunities for growth in the future if this were to occur.

  • Andy Jassy has taken over Jeff Bezos as CEO, presenting potential risks to the future of the company if the strategic course of the were to diverge dramatically from Bezos’s mission.

  • Amazon is still in growth mode – margin pressure will remain a risk in the short- and long-term.

Bottom Line

Amazon has a wide moat across many of its business segments. Where it has no moat, it is currently building one. Customers cannot get enough of Amazon, and that is what drives its competitive advantages. Amazon is one of the greatest and highest quality businesses in the world and one that investors should always have on their watchlists.

Amazon’s growth runway is far from over despite its $1+ trillion market cap. Amazon leads in ecommerce, IaaS / PaaS cloud, and ecommerce channel advertising, where most of its revenues are generated and double-digit growth rates are expected for years to come. It seems there is nothing Amazon can’t do – streaming, physical retail, enhanced shopping categories, artificial intelligence and machine learning, and many other opportunities are all areas Amazon is exploring.

Absolutely nothing is off the table. In the end, we believe Amazon will be a winner for years to come based on its commitment to executing strategies the right way, the first time.

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