Morningstar | Amazon's Business Continues to Evolve but Still Offers a Dynamic Long-Term Cash Flow Story
Amazon's disruption of the retail industry is well documented, but the company continues to find ways to evolve its business model. Its operational efficiency, network effect, and a brand intangible asset built on customer service provide its marketplaces with sustainable competitive advantages that few, if any, traditional retailers can match. The combination of competitive pricing, unparalleled logistics capabilities and speed, and high-level customer service makes Amazon an increasingly vital distribution channel for consumer brands. Even with more retailers looking to expand online, we believe Amazon will maintain its consumer proposition through Prime expedited shipping, an expanding digital content library, and new partnerships from its Whole Foods acquisition. Aided by more than 440 million estimated global active users, more than 120 million global Prime members, and fulfillment infrastructure, technology, and content investments, Amazon owns one of the wider economic moats in the consumer sector and is likely to reshape retail, digital media, enterprise software, and other categories for years to come. Key top-line metrics--including active users (a 12% compound annual growth rate the past five years), total physical and digital units sold (23% CAGR), and third-party units sold (30% CAGR)--continue to outpace global e-commerce trends, suggesting that Amazon is gaining share while fortifying its network effect. On top of its impressive growth, Amazon is building a more visible margin expansion story despite investment requirements for new fulfillment infrastructure/capacity, content deals, AmazonFresh, hardware such as the Echo/Alexa-enabled products, new delivery technologies, and physical store expansion. While some capital decisions haven't always yielded strong returns, we're optimistic that Amazon can grow to and sustain 9%-10% operating margins by 2023 based on Prime adoption and new pricing tiers, new subscription services spanning multiple categories, AWS segment margins around 35%, fulfillment center scale, new third-party seller services, advertising services, and Alexa technology licensing arrangements.Amazon.com serves consumers through its online and physical stores. The company also manufactures and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo, and Ring, and the company develops and produces media content. The company operates customer service centers and provides programs that enable sellers to grow their businesses, sell their products in its stores, and fulfill orders through the company The company serves developers and enterprises of various sizes, including start-ups, government agencies, and academic institutions, through its Amazon Web Services segment, which provides a set of global compute, storage, database, and other service offerings. The company also provides services, such as advertising.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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