Amazon Stock (NASDAQ:AMZN)
It’s common knowledge that Warren Buffett-style stocks often have specific defining characteristics. If you’re acquainted with them, you know that Amazon stock doesn’t have them.
I don’t understand why. The Berkshire Hathaway CEO, Warren Buffett, often invests in dividend stocks with a history of success in both good and poor economic periods. He is particularly fond of equities now selling at a discount to their true worth. Buffett has shunned technology companies because he claims he cannot accurately evaluate them.
Amazon stock has always been a pricey stock. Its many business lines and commitment to experimentation make it tough to assess using traditional methods. Amazon (NASDAQ:AMZN), however, has become one of the largest corporations in the world due to its success in e-commerce and cloud computing, and Warren Buffett has taken note. He spoke highly of Amazon’s founder and current chairman Jeff Bezos in 2016, adding, “We haven’t seen many businesspeople like him.”
It was in 2019 when Berkshire Hathaway, under Buffett’s supervision, started purchasing shares in Amazon. When asked why he didn’t put more money into Amazon stock sooner, Buffett famously dubbed himself an “idiot.” Berkshire held around 10.7 million shares in Amazon as of the second quarter, valuing the company at approximately $1.24 billion.
Buffett’s preference for Amazon stock is understandable given the company’s wide economic moats, even though Amazon doesn’t follow his traditional investment strategy. Buffett places a premium on moats, or enduring competitive advantages, in his investment approach. Let’s examine many of Amazon’s economic advantages.
The Key Ingredients of a Successful Loyalty Program
Amazon’s Prime membership program is an excellent illustration of the company’s competitive advantages. The service, which costs $139 annually and includes free two-day delivery, access to Amazon Prime Video, and discounts at Whole Foods, has attracted more than 200 million subscribers worldwide.
Since consumers who sign up for Prime get free two-day delivery and free returns, they have a financial incentive to continue shopping at Amazon. As a result, Amazon Prime customers spend an average of $1,400 a year, compared to just $600 annually for non-Prime members.
The sheer number of subscribers is evidence enough that Amazon Prime is an essential part of the company’s e-commerce strategy, helping to generate over $20 billion in yearly sales.
To Be the Preeminent Provider of Cloud Infrastructure.
Amazon Web Services, Amazon (NASDAQ:AMZN) cloud computing division, currently accounts for the vast majority of Amazon’s income, even though its e-commerce operations continue to get much of the company’s focus from customers and shareholders alike. AWS has become an industry leader with its quick expansion and high-profit margins. AWS saw a 33% increase in sales to $19.3 billion in the second quarter. Amazon stock made $5.7 billion in operating income or an operating margin of 29%.
Amazon (NASDAQ:AMZN) was the first company to provide data storage and server processing power via the Internet, a model known as “cloud infrastructure.” According to Bezos, Amazon’s cloud business began internally to support the firm’s retail operations, giving the corporation a seven-year head start over the competition.
AWS has grown so popular because it allows businesses to scale their computing resources while keeping costs low. Even though Amazon Web Services (AWS) has several rivals in this market, including Microsoft Azure and Google Cloud Platform, it continues to expand and profitably dominate the field.
An Industry Leader in Regards to Happy Customers
Bezos’s long-term thinking and emphasis on client happiness set him apart from other retailers. Amazon’s goal is to become the most customer-focused business in the world. It consistently achieves high placement in customer satisfaction rankings, giving it a significant competitive edge over competitors like Walmart, which has struggled in this area.
The success of Amazon Prime can be directly attributed to the company’s dedication to customer pleasure, which also offers Amazon a competitive advantage in the market when it introduces new items like Alexa-enabled gadgets. Amazon shoppers trust the company’s offerings more than the general public.
Buffett acknowledges Amazon’s solid customer base, stating in 2016 that Bezos “took items you and I have been purchasing, and he worked out a way to make us happy buying those goods, whether by rapid delivery or costs or whatever it may be, and that’s extraordinary.”
Even if Bezos is no longer in charge of day-to-day operations, Amazon stock will still have a significant edge in the market. Berkshire will likely be a patient investor in Amazon stock at the current price.
Featured Image- Megapixl @ Kenishirotie