Shares of #Amazon .com (NASDAQ:AMZN) briefly topped $1,000 at the end of May, marking a milestone moment in the tech giant's 1,340% run over the past decade. Some analysts believe that the stock still has room to run, with the highest near-term target at $1,250 per share. Let's take a look at how Amazon stacks the deck against the competition and why these advantages could last for decades to come.
Amazon's castle is built on a high-margin cloud
Amazon Web Services ( #AWS ), which originated from efforts to scale up Amazon's own IT infrastructure over a decade ago,now provides cloud storage and infrastructure services to major clients like NASA, the Centers for Disease Control, and Netflix(NASDAQ:NFLX).
That growing list of customers has made AWS the largest cloud infrastructure platform in the world. The unit's revenue rose 43% annually last quarter and accounted for 13% of its top line. But on the bottom line, its operating income rose 47% to $890 million -- compared to just $724 million in operating income for the entire company.
That's because AWS' higher-margin business offset a big loss at its international marketplace and weaker operating income growth at its North American marketplace. This structure -- where a higher-margin business supports lower-margin ones -- enables Amazon to expand its e-commerce ecosystem with low-margin and loss-leading investments.
It's all about Prime
The key to expanding that ecosystem is Amazon Prime, which locks in users with discounts, free shipping options, streaming videos, cloud storage, e-books, and other perks for $99 per year. That ecosystem also includes affordable gadgets like the Kindle e-readers and tablets, Echo smart speakers, and Dash buttons.
Back in April, research firm CIRP estimated that the number of Amazon Prime members in the U.S. doubled over the past two years to 80 million. It also claimed that the average Prime member spent $1,300 per year on the site, versus $700 for non-members.
https://www.fool.com/investing/2017/06/02/how-amazoncom-is-stacking-the-deck-against-the-com.aspx
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