Amazon’s Stock: A Closer Look at AWS and Digital Advertising
Amazon’s stock (AMZN) has faced some turbulence in recent times due to global trade uncertainty. However, beneath the surface, two key business segments, AWS and digital advertising, are driving substantial operating profit growth. This growth makes the stock an attractive investment opportunity, despite the external uncertainties.
Amazon Web Services (AWS)
Amazon Web Services (AWS), Amazon’s cloud computing division, has been a significant contributor to the company’s operating profits. With high margins and a growing customer base, AWS is expected to sustain this growth trend.
According to recent reports, AWS accounted for approximately 13% of Amazon’s total revenue in Q4 2020. While this percentage might seem small, the segment’s operating income margin is significantly higher than Amazon’s overall margin. In Q4 2020, AWS’s operating income margin was around 28%, compared to Amazon’s overall operating income margin of 4.5%.
Moreover, the market for cloud computing is expected to continue growing at a rapid pace. According to a recent report by Grand View Research, the global cloud computing market size is expected to reach USD 1,344.2 billion by 2028, growing at a compound annual growth rate (CAGR) of 17.5% during the forecast period.
Digital Advertising
Another segment that is poised to boost Amazon’s profits is digital advertising. Leveraging its vast customer data trove, Amazon has been making significant strides in the digital advertising market.
Amazon’s digital advertising business has been growing at a rapid pace. In Q4 2020, Amazon’s other revenue, which primarily includes digital advertising, grew by approximately 51% year-over-year. This growth is expected to continue as more brands turn to Amazon for their advertising needs.
Amazon’s vast customer data, combined with its e-commerce dominance, makes it an attractive platform for advertisers. According to eMarketer, Amazon is projected to capture 11.3% of the U.S. digital ad market share in 2021, up from 8.8% in 2020.
Impact on Individuals
For individuals investing in Amazon stock, this growth in AWS and digital advertising could translate into higher profits. As the market recognizes the value of these segments, Amazon’s stock price could potentially increase.
Impact on the World
On a larger scale, Amazon’s growth in AWS and digital advertising could have significant implications for the world. The continued growth of cloud computing could lead to increased efficiency and productivity across various industries. Additionally, the dominance of Amazon and other tech giants in digital advertising could reshape the advertising landscape and impact traditional media companies.
Conclusion
Despite the external uncertainties affecting Amazon’s stock, the growth in AWS and digital advertising presents a compelling investment opportunity. With high margins and significant growth potential, these segments are poised to significantly boost Amazon’s operating profits. For individuals and the world, this growth could translate into increased efficiency, productivity, and new opportunities in various industries.
- Grand View Research. (2021). Cloud Computing Market Size, Share & Trends Analysis Report By Component, By Deployment Model, By Organization Size, By Vertical, By Region, And Segment Forecasts, 2021 – 2028.
- eMarketer. (2021). Amazon’s U.S. Digital Advertising Market Share 2021.
