Roy Davidson, 7 February 2019



Amazon (AMZN) is a multinational e-commerce company, and the world's largest retailer. On the enterprise services front, Amazon Web Services provides cloud-based technological infrastructure to businesses. AMZN also provides other services, such as advertising services and co-branded credit card agreements, and manufactures and sells electronic devices, including kindle e-readers, fire tablets, fire mobile phones and fire TVs.

Cloud transformation

Amazon Web Services is the dominant player in cloud infrastructure services, and according to many, is the greatest disruptive force in the entire enterprise IT market today. It reported revenues of US$17.5bn in FY17, up an amazing 43% on the prior year. This accounted for 10% of AMZN’s total revenue and its operating earnings of US$4.3bn accounted for 105% of AMZN’s combined operating earnings. Based on revenues, Amazon Web Services is estimated to be six times larger than its biggest rival Microsoft Azure. While growth rates of over 40% are not sustainable long-term, strong adoption rates, existing customers migrating more of their IT workloads to the cloud, and the release of new cloud-based products and services provide significant growth opportunities.

Attractive outlook for

AMZN started as an on-line book retailer in 1994 and over the last 20+ years has created a global e-commerce giant offering the broadest selection of retail goods. AMZN controls close to 25% of US ecommerce and slightly less internationally and continues to gain share at a solid pace. AMZN has used its fulfilment centres to lock merchants into using to list and sell products. Over the last decade AMZN has invested significantly in fulfilment centres which are warehouses for the company’s own inventory as well as for third-party merchants. Fulfilment by Amazon is a service created to allow businesses to store inventory and fulfil orders from AMZN’s fulfilment centres. Instead of competing with AMZN in ecommerce, many businesses continue to operate their physical stores and make online sales through AMZN. This has allowed the company to stay ahead of its peers on customer service and expand into more product categories, positioning it for further growth.

Investment view

We remain optimistic about AMZN’s growth outlook. The US consumer environment remains in a very strong position and we expect it to remain this way for the foreseeable future thanks to the recent tax cuts and fiscal stimulus, strong credit growth trends and pent-up consumer demand. Growth opportunities are increasing as AMZN expands into new regions (Brazil, India and Australia), moves into new markets (advertising) and through M&A (PillPack, Whole Foods Market). Add in a very healthy overall corporate IT spending environment and you have a very bright outlook for both the company’s retail business and its cloud computing business, Amazon Web Services. However, AMZN’s impressive financial performance over the past twelve months has market expectations and the company’s valuation at demanding levels. This leaves AMZN with very little room for error.


  1. economic slowdown
  2. regulatory risk
  3. increased competition