In 1994 Jeff Bezos , a Wall Street investment manager who had just turned 30, quit and moved to Seattle to start a business from his garage. On 5 July 1994, he incorporated his company in Washington State under the name Cadabra, but changed it to Amazon, because (according to company legend) a lawyer had misheard its original name as “cadaver”.
When Amazon began trading a year later, Bezos’s hunch that books were the perfect product for an e-commerce start-up was proved correct. Within two months, Amazon – billing itself as “Earth’s biggest bookstore” – had revenues of $20,000 a week. In 1998, the company – already diversifying its product offer – changed the slogan to “Earth’s biggest book and music store”.
That year it also expanded outside the US , with its first international sites in the UK and Germany. In 1999, as internet use boomed and e-commerce began to take off, Bezos was Time magazine’s Person of the Year for his success in online shopping.
Amazon’s shares were battered by the dotcom bust – crashing from more than $4 (rebased for stock splits) in November 1999 to just 30 cents in September 2001. But for Amazon, it was a temporary setback. A key driver of growth came in November 2000 when the company launched Amazon Marketplace , allowing third parties to sell directly to consumers. Later Amazon landmarks include the 2006 launch of Amazon Web Services (cloud computing for third-party businesses) and the launch of both Amazon Prime (a membership subscription model allowing free delivery) and the first Kindle e-reader in 2007.
Where is Amazon at now?
Better than ever. Amazon’s shares surged in the pandemic and then slumped again – roughly halving over the course of 2022. But since then they have been heading steadily up to all-time highs around the $200 mark, and in late June, Amazon’s market capitalisation hit $2 trillion. To put this in context, when Amazon floated in May 1997, its $18 initial share price (rebased to allow for the many subsequent share splits) was the equivalent of nine cents.
On this rebased ledger, it passed the dollar mark in July 1998, and then the $10 level in 2011. In 2020 the shares topped $100 – more than 1,000 times their initial level – and are now worth twice that. Put another way, a $10,000 investment when Amazon floated would now be worth more than $22 million. So it has made a lot of people very rich – not least Bezos himself. He handed over the CEO reins in 2021, but still holds a 9% stake worth about $180 billion; he sold a few billions worth recently.
What about revenues?
That surging share price is thanks to dramatic growth in top-line revenues in recent years. They’ve jumped from $280 billion in 2019 to $386 billion in 2020, and to $575 billion in 2023 – driven by rapid growth in advertising revenues, Prime subscriptions, Amazon Web Services (AWS) and services for third-party vendors. Today, the firm is led by Bezos’s longtime protégé and chief of staff Andy Jassy. He was the founding CEO of AWS, the cloud-computing division that will generate more than $100 billion in revenue on its own in 2024.
For all the overall revenue growth, a core challenge is that e-commerce, as a proportion of overall retail sales, appears to be flattening off, says Greg Petro in Forbes . In the US, estimates of Amazon’s merchandise sales for the most recent year range as high as $540 billion, while the overall e-commerce share of the retail economy stands at 15.6% – only marginally higher than the previous year. For Amazon, e-commerce sales have grown just 5% over the past 12 months, a third of their pre-Covid pace. Given that this retail segment (if you include shipping and other services sold to vendors) still accounts for two-thirds of revenues, that’s a problem.
What are the other challenges?
Some are reputational and regulatory. Many of us love Amazon for bringing useful things cheaply to our front doors. But we also slightly hate it for being a data-hungry and allegedly monopolistic behemoth that invades our privacy to sell us stuff, and pays its exhausted workers as little as possible. Amazon’s “big secret” remains the fact that it’s hard to tell exactly how profitable it is, and where its profits come from, because (other than AWS) it refuses to break them down by division, says Stacy Mitchell in The Atlantic .
The firm has a long record of reinvesting in its business and reporting relatively low taxable profits compared to revenues. But the impression it likes to give that its shopping platform runs on “razor-thin margins” – relying instead on AWS for much of its profit – is highly questionable. Indeed, it’s being directly questioned by a live antitrust lawsuit brought earlier this year by the Federal Trade Commission in the US, which alleges that anti-competitive practices in Amazon’s marketplace division inflate prices unfairly across the internet.
What will the next decade bring for Amazon?
Anti-trust scrutiny will be intense and could impede growth, says The Economist . A second challenge is generative artificial intelligence , where Microsoft has grabbed the lead and Amazon’s dominance in cloud computing is waning as a result. In 2022 its market share was 13 points higher than Microsoft; now it’s just six points. In retail, too, there’s a growing threat from big rivals.
Alphabet and Meta are “once again trying to break into” e-commerce, while Walmart (the dominant player in the $2 trillion US grocery market) is moving into online advertising, and has launched a Prime-like subscription service. Yet for all that Amazon’s “fourth decade will be harder than its third”, its astonishing record of customer focus and innovation should stand it in good stead.
In the dotcom bust, doubters dubbed the company “Amazon.bomb”. Sceptics jeered when it diversified into cloud computing. “To dismiss Amazon again today would be a mistake” – and perhaps a costly one.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription .
Most Popular
Comments / 0