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Shopify It recently shocked Wall Street when it announced it was selling most of its logistics business.
Investors cheered him on the decision, but perhaps none were happier about the news than his rival. Amazon (AMZN 2.56%). Shopify’s sudden exit cements Amazon’s position as the market’s leading e-commerce platform.
With shares down more than 43%, it might be a good time to revisit this e-commerce powerhouse. This is why Amazon stock is a buy today.
Amazon tile is real.
Amazon has spent billions of dollars in recent years, building distribution centers and delivery networks to fulfill orders quickly and efficiently. The business model of the Shopify platform allows merchants of any size, from individual to enterprise, to easily build and operate online stores. The company was trying to get into logistics to take the next leap. However, Shopify found that it wasn’t a good fit for its finances.
AMZN Cost of Capital (TTM) data by YCharts.
Last year, Amazon’s nearly $63 billion in investments valued Shopify as a whole company. It’s a task that no one else has the deep pockets for. It used to take days to receive a package, but Amazon is slowly working toward faster delivery — some markets can offer same-day delivery.
The company’s scale and efficiency is a real competitive advantage because it will be difficult for anyone else to come along and match the investment required to build such a logistics machine. This efficiency means Amazon can better serve its e-commerce business at lower prices in the US, where 85% of retail trade is still offline.
Future growth opportunities with Prime memberships
Amazon’s cloud business AWS seems to be the focal point of the stock’s investment thesis, and it has even been criticized lately for slowing growth in that segment. But I would argue that Prime is still as valuable to shareholders as ever. Today, Amazon Prime subscriptions generate roughly $40 billion in high-margin revenue each year, and that’s growing.
Today, there are more than 200 million members worldwide, although most live in the United States, where Amazon’s business is held. Investors should think of this massive user base as a distribution network through which Amazon can quickly scale and create ways to monetize Prime users.
This distribution helps explain why Amazon has invested heavily in protecting its retail business and is paying $11 billion for the rights to broadcast National Football League games to its core audience. Amazon founder Jeff Bezos once said he wanted Prime to be so well-priced that “it would be irresponsible not to be a member.” The company still operates with that mindset, which could yield big returns for shareholders over time.
Amazon inventory is on sale.
Amazon’s heavy investment has skewed its profits and made its stock difficult to read. But if you strip away those investments and focus on cash gains from day-to-day operations, you’ll see that the stock is the cheapest it’s been in a decade.
AMZN Price to CFO per Share (TTM) data by YCharts.
Assuming Amazon’s massive investments into the business tail off at some point, that could reinvigorate Amazon’s bottom line and make the stock suddenly look more attractive. But if you’re trying to get in before the rush, now is a good time to consider buying stocks for the long term. Now that Shopify is waving the white flag toe-to-toe in execution, Amazon is poised to dominate.
John McKee, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of the Motley Fool’s board of directors. Justin Pope has no position in the mentioned stocks. He has spots in the Motley Fool and recommends Amazon.com and Shopify. The Motley Fool has a disclosure policy.
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