Amazon (AMZN 0.01%) disappointed investors in its most recent quarter when the company reported slower-than-normal sales growth and issued guidance that didn't match up with Wall Street's expectations.
Some investors reacted by selling their shares as Amazon stock has shed 15% since the earnings release on Feb. 2. Investors are certainly wise to keep tabs on any slowdown a company experiences, but they were overreacting when it comes to Amazon's future.
Here are three long-term opportunities that are still well intact for the company.
Image source: Getty Images.
AWS still has room to grow
Amazon investors were likely disappointed by the fact revenue for the company's cloud computing business -- Amazon Web Services (AWS) -- slowed to 20.2% growth in the fourth quarter (reaching $21.4 billion), down from 27.5% growth in the previous quarter.
But any pessimism around AWS and its long-term potential is likely misplaced. First of all, AWS is still the de facto cloud computing choice for companies of all sizes. At the end of 2022, the segment held a 33% market share, higher than its closest competitor, Microsoft Azure,which controlled 23%, while Google Cloud took just 11%.
Additionally, demand for cloud services continues to climb. This year, companies will spend an estimated $525 billion for cloud services, and by 2027, that figure is expected to rise to $881 billion.
Any near-term slowdown for AWS isn't fun to see, but the long-term trends for cloud computing are firmly in place, and Amazon still leads the pack when it comes to this massive opportunity.
A robust retail business
Amazon's e-commerce store experienced lots of growth during the height of the pandemic, but some investors are viewing the inevitable slowdown from that high as a sign that Amazon's retail business is in trouble.
It's not, and here's why. First of all, the company's North American retail sales (its largest segment) still grew at a healthy 13% in the fourth quarter, reaching $93.4 billion. Those sales helped push the company's total revenue up 9% to $149.2 billion.
And it's reasonable to assume there is more e-commerce growth coming when you consider the company's current leadership position and the overall size of the e-commerce market.
U.S. e-commerce sales reached $1.03 trillion in 2022 -- the first time they have surpassed $1 trillion annually. And over the next four years, online sales are estimated to further climb to $1.67 trillion.
That's a significant increase, and Amazon's current U.S. e-commerce market share of 37% -- compared to 6% for Walmart and 2% for Target -- means it will benefit the most from the rising tide.
Amazon's ad business is booming
For years, Amazon slowly grew its ad business, and it's now become an impressive revenue stream for the company, generating $11.6 billion in sales in the fourth quarter -- up 19% year over year.
That growth is impressive on its own, but it also came at a time when macroeconomic conditions have created headwinds for other major advertising companies, including Meta Platforms and Alphabet. Amazon has a unique opportunity in this market, because companies increasingly see value in buying ads from Amazon, even in an uncertain economic environment.
Amazon CFO Brian Olsavsky said on the recent earnings call, "Sellers, vendors, and brands continue to look to Amazon's advertising capabilities to reach customers in the always competitive holiday season, even as the macro environment required them to scrutinize their own marketing budgets."
Amazon held a 7.3% share of the U.S. digital ad market in 2022, up from just 3.8% in 2019. And with the market expected to climb more than 50% in the next four years to reach $385.4 billion in 2026, Amazon again finds itself with a large business on a strong trajectory.
All of the above shows there are still very good reasons to be optimistic about Amazon's future. With the stock's recent decline, shares are still down nearly 50% from their all-time high, meaning long-term investors still have an attractive buying opportunity right now.
