Roy Davidson, 15 August 2019



Amazon (AMZN) is a multinational e-commerce company, and the world’s largest online retailer. On the enterprise services front, Amazon Web Services provides cloud-based technological infrastructure to businesses. AMZN also provides other products and services, such as advertising services and electronic devices, including kindle e-readers and fire tablets.

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$25.7bn in FY18, up an amazing 47% on the prior year. This accounted for 11% of AMZN’s total revenue and its operating earnings of US$7.3bn accounted for 59% 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 e-commerce 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 e-commerce, many businesses continue to operate their physical stores and make online sales through This has allowed the company to stay ahead of its peers on customer service and expand into more product categories.


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), 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 has market expectations and the company’s valuation at demanding levels. This leaves AMZN with very little room for error. While we are maintaining our Neutral (Hold) recommendation, we are growing more constructive as the company’s financial performance catches up with its valuation.


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