After becoming the second company to achieve the $1 trillion market cap milestone, Amazon.com Inc. (AMZN, Financial) has seen some great progress with regards to its revenue contributors and has also been working on other fronts to grow its market dominance. Be it ad revenue, product development or acquisitions, Amazon has several irons in the fire.Ă‚
Research firm eMarketer has forecast that Amazon will more than double its ad revenue in 2018, grabbing the third position in the U.S. digital advertising space, behind only Alphabet's Google (GOOGL, Financial) and Facebook (FB, Financial). The firm predicts that companies will spend around $4.61 billion on Amazon ads this year, helping Amazon get 4.1% share of the market, above Verizon’s Oath (VZ, Financial) and Microsoft (MSFT, Financial).
EMarketer also pointed out that a major driver for this revenue growth was an accounting change, letting Amazon identify its ad services as other revenue instead of cost of sales. Apart from the accounting change, the research firm expects a 10% to 12% growth in ad revenues for Amazon, owing to stronger-than-expected organic growth. This number is expected to shoot up to 50% through 2020, leading the e-commerce behemoth to acquire 7% of the overall market by 2020.
Coming to product development, Amazon launched several new gadgets on Thursday during a hardware event hosted at its Seattle headquarters.The company introduced new products ranging from Alexa-powered microwaves and wall clocks to new Echo devices.
Another development that piqued investors’ interest was Amazon's recent acquisition of Aditya Birla Group’s retail food and grocery chain, More. Merely four months after Walmart (WMT, Financial) acquired Indian e-commerce giant Flipkart, Amazon upped its India play by acquiring a 49% stake in More. As the fourth-largest supermarket chain in India, More opens up a lot of opportunities for the e-commerce giant.Â
While it has to compete with other big players in India, such as Future Group, Reliance Retail and DMart, Amazon brings with it a lot of firepower in terms of cash, business expertise and resources. Therefore, it will be interesting to see how Amazon’s plans pan out.
From a fundamental perspective, Amazon seems to be winning big. It has a three-year revenue growth rate of 23.3% as compared to the industry median of 2.2%, while its three-year EBITDA growth rate of 46.1% also comfortably surpasses the industry median of 3.9%. Moreover, GuruFocus currently scores the company 9 out of 10 in profitability and growth.
Despite relatively stretched valuations, the recent string of developments call for a second look and further rally in the stock.
Disclosure: I do not own any of the stocks mentioned.
