- The well-known business for Amazon is E-commerce, but it isn’t the most profitable.
- Amazon’s cloud operation is a juggernaut.
- Amazon’s digital advertising engine is running at full speed as well.
Investors have been getting more interested and buying Amazon stock since it announced that it would execute a 20-for-1 stock split on June 6.
Stock splits are frequently exciting for investors since they result in a lower price per share, making it more feasible for more people to invest. However, recently, fractional purchases are more accessible since many brokerage accounts allow traders to buy fractional shares.
Third, while shareholders will wind up with more shares than they had before, the overall value of the firm (as well as prior investors’ stakes) will not change.
Head in the clouds
Although Amazon is primarily known as an e-commerce behemoth, its cloud computing business, Amazon Web Services (AWS), is where it earns its real money.
Amazon Web Services accounts for nearly half of the 2021 operating income, although it generated just 13% of total revenue. With sales rising 40% year over year in the fourth quarter to $17.8 billion, Amazon’s cloud business is very lucrative and one of the firm’s fastest-growing divisions.
AWS’s success is remarkable enough, but its potential appears even more enticing when you look at the big picture. AWS currently holds 33% of the cloud infrastructure market, worth $191 billion. The runner-up is Microsoft (NASDAQ:MSFT), with a market share of 22%. Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) is behind them, with a 9% share.
In conclusion, AWS is rapidly expanding, highly profitable, and the leading cloud provider, which suggests that long-term growth potential exists for Amazon.
Advertising is a fringe benefit
Amazon released its fourth-quarter results in February. When its advertising revenue was made public for the first time, investors loved what they saw.
The company’s ad sales in Q4 came to $9.7 billion, up 32% from 2020. In comparison, Amazon’s advertising business is officially larger than YouTube’s ad sector, worth $8.6 billion throughout the same period.
Analysts and investors had to make do with estimates before the most recent report. Still, they now have a clear picture of a flourishing business generating a lot of money and expanding quickly. Amazon’s advertising business will continue to erode Alphabet’s and Meta Platforms’ (NASDAQ:FB) market shares over the following years. Thus, accounting for nearly 15% of the digital ad market in 2023, up from just under 12 percent last year.
Bear in mind
Some investors may be excited about Amazon right now because of the company’s upcoming stock split. However, its strong advertising and cloud computing positions are much more compelling reasons to buy Amazon stock now.