The rise and rise of Amazon

-- | 17/07/2020

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Narrator: While you're watching this video, you very well could have a package from Amazon (AMZN) waiting on your doorstep. You might even be able to check using your Ring home security system, which is an Amazon company. Maybe you're even watching this video while in line at another Amazon company, Whole Foods. Amazon is a massive company with many services, but does size alone make for a good investment? 

Quick history: Founded by lawyer turned entrepreneur, Jeff Bezos, in 1994 in what is a humble albeit familiar story for startups, Amazon started out of a garage. The original name for Amazon was Cadabra, but Bezos changed it to Amazon after somebody misheard it as "cadaver," which—good call, Amazon is much more clear. Anyway, after noticing that web traffic was growing at 2300 per cent a year, Bezos wanted to build a virtual bookstore with millions of books, something that couldn't exist in the physical world. It worked. 

From there, Amazon began to expand to CDs, movies, clothing, as well as companies and services, including IMDb, Prime Membership, Audible, Zappos, Twitch, Ring, Whole Foods, Amazon Web Services, Amazon Studios, and more. Obviously, Amazon is big, but sheer size isn't a strength unto itself. So how exactly is having everything from a video game streaming service to selling shoes a strength? For that answer, let's throw it over to Morningstar Research Analyst RJ Hottovy.

RJ Hottovy: Looking back the last several years at Amazon, a lot of the acquisitions the company's made can seem scattershot. Things like Whole Foods and Twitch—on the surface it doesn't seem like these businesses fit together, but in reality, I think what Amazon is trying to build is a more diversified service offering. In reality, most e-commerce companies don't make money on the products they sell.

Instead, they make it up on the services and subscription offerings. The different things that they currently offer, including Amazon Video, Amazon Music, Audible, and Twitch Streaming, these are a lot of ways that Amazon can make up a significant amount of profit for these business and more importantly, lock you into their services. Players like Walmart (WMT) and Target (TGT) and Netflix (NFLX) each have certain aspects of these services, but at the end of the day they don't have the complete package. I think ultimately that makes a much stickier customer experience for Amazon users.

Narrator: Well that's a quick look at Amazon, but if you want to know more about this self-proclaimed "everything store" and whether it is overvalued or undervalued right now, check out our full analysis of Amazon on, or on 1500 other companies. We do cover a lot.

This report appeared on 2021 Morningstar Australasia Pty Limited

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