Business decisions are being driven by data. Cloud computing, a form of server virtualization, is one of the most critical components of data synthesis and aggregation. Cloud providers allow customers more flexibility because they don't have to invest in physical server infrastructure. Amazon is emerging as the leader in the public cloud market, according to a new report. Is that positioning a good idea to invest in the web giant right now?
It has been difficult to beat it.
In the first nine months of the year, Amazon's cloud segment, Amazon Web Services, generated $44.4 billion of revenue while operating at a 30% margin. For the first nine months of the year, Google Cloud contributed $13.7 billion of revenue and is unprofitable, as it reported a loss of $2.2 billion.
The pace of growth is staggering. The company generated $16.1 billion of revenue in the third quarter of 2011. The operating income for the segment was more than Amazon's entire business. Amazon Web Services is the most important pillar of the company.
Amazon stock has remained relatively flat over the last year, despite the impressive growth of the company's business. Over the last 12 months, Microsoft and Google saw their stock prices increase by 42% and 52%, respectively.
The image is from the same source.
There are ambitions beyond the cloud.
The profits from the cloud business have been reinvested into other segments of the company. Digital advertising is becoming an important part of Amazon's business.
Amazon is expected to make up 10.7% of the U.S. digital ad market in 2021. One could argue that this theme will stick because of the fact that Amazon's platform makes it more convenient for consumers to make purchases online.
The company could benefit from the boom on the digital ad side of its business as it gains market share from Meta Platforms. According to eMarketer, the digital ad business in the U.S. will decrease from 28.9% in 2020 to 26.6% in 2023.
Amazon is in a good position to benefit from investment in digital transformation. As the company gains market share over its competitors, the capital efficient margin profile will continue to fuel growth as the company looks to enter new industries.
When in doubt, zoom out.
Wall Street analysts and investors kept a close eye on Amazon as the company significantly increased its operating expenses to combat supply chain speed bumps. The company's Q3 2021 financials showed the effects of increased expenses. For the quarter ended Sept. 30, Amazon reported operating margins of 1.3% and - 3% for its North American and International e-commerce segments, respectively.
It is important for investors to look at the bigger picture during times of economic uncertainty. Many growth and technology stocks saw significant sell-offs during the final months of the year due to concerns over inflation, but Microsoft, Google, and Amazon appear to be compelling investments. Although Amazon's profitability profile has taken a hit due to challenges on the e-commerce side of the business, it could be argued that this is a function of short-term headwinds related to wage inflation and supply chain. The company has been able to fight these challenges because of the growth in the company. Amazon can use some of the profits to invest in other areas such as digital market, entertainment, and consumer electronics.
Amazon's business appears to be more prolific than its competitors who rely on singular products, such as hardware devices and advertising, which are also markets that Amazon competes in. Amazon is currently trading for three times trailing 12-month sales compared to Microsoft's 15 times and Alphabet's eight times.
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