How Amazon Stock Became a Member of the 100,000% Return Club
Amazon's wide moat is one reason it has generated a 100,000%-plus return for investors over the long haul.
Editor's note: This is part two of a 13-part series about companies whose shares have amassed 100,000% returns for investors and the path taken to generate such impressive gains over the long term. Part one is: McDonald's Stock: How Small Changes Have Led to 100,000% Returns.
Amazon.com (AMZN) is yet another story about a company that was launched out of the founder's garage and, originally, focused on books alone. While technology was advancing at the time, it hit an inflection point in the mid-1990s. So-called "applications" evolved into "platforms" that could support many processes at one time whether they were similar or disparate. By 1998, Amazon's application for selling books became a platform for selling everything, and today that's exactly what Amazon does.
But the story of Amazon also shows the perils of investing in technology companies. It's possible there are few investors who reaped the full 180,000% return because of the paper losses they would have had to endure during the company's formative years. Indeed, near the end of 1999, Amazon stock was trading at a split-adjusted $4.25. By March of 2001, shares were priced at $0.51, a stunning loss of 82% of its value. This likely cleared out most of the early investors.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
New investors who thought $0.51 was a buy didn't fare much better. From the $0.51 price in March of 2001, the shares bottomed out at $0.30 in September. These new investors lost 42% of their money in just six months. For the investors who got in at $4.25, the apparent bottom at $0.51 was just a weigh station.
Little of this pain is remembered. Nor is it rare. Apple and Nvidia delivered wild rides too. There are some lessons that can be drawn from Amazon, however. First, earning a mega return may depend on diversification. Most investors would flee a 92% loss. Those who didn't may have stayed in because Amazon shares represented a small position in their overall portfolio, and the loss simply did not matter that much. In some cases, it may have come down to luck. Imagine the happy surprise for investors who held Amazon stock in a long-forgotten account, and discovered their shares 20 years later.
The other lesson is that technology investing will almost always be volatile. One reason is that, in many cases, other competitors can adopt similar technologies and compete head-on. In 2000, there were lots of online retailers. But Amazon pulled ahead because it built a moat that was hard for other companies to compete with.
Amazon's first moat was a large network of captured users through its Amazon Prime memberships. Today there are 180 million Amazon Prime members, whose business can be counted on, and who can be stimulated to buy more from Amazon. Amazon's second moat is being built today, right now. Amazon Web Services, or AWS, is the company's powerhouse. It accounted for just 16% of revenues in 2023, but 67% of operating income. For Amazon, growth in retailing will always be important, but for growth in earnings, web services may prove to be the ultimate driver.
By the way, Amazon feels like a monopoly, but it isn't. Total retail sales in the United States are about $7 trillion. For 2023, Amazon's total sales were about $575 billion, or about 8.2% of all retail sales. While Amazon has less than 10% of retail sales, it's an amazing number for a company that's just 30 years old. It took Sears, founded in 1892, almost 70 years to reach its zenith in the 1960s. In the smaller subset of e-commerce, Amazon has about 38% of all sales, a much larger number.
For companies with a 38% share of the market, investors worry whether they can hold onto it. In the case of Amazon, the question might more accurately be, how much more of the market will they take that they don't already have?
Note: This content first appeared in Louis Navellier's latest book, The Sacred Truths of Investing: Finding Growth Stocks that Will Make You Rich, which was published by John Wiley & Sons, Inc.
Related content
-
Dow Dives 870 Points on Overseas Affairs: Stock Market TodayFiscal policy in the Far East and foreign policy in the near west send markets all over the world into a selling frenzy.
-
Quiz: Understanding Roth ConversionsQuiz Discover if a Roth conversion is the right move for you by taking our quick quiz.
-
How Prices Have Changed in Trump's First YearTrump campaigned on bringing prices down for Americans. Here's where prices stand one year into his second term.
-
Dow Dives 870 Points on Overseas Affairs: Stock Market Today
Fiscal policy in the Far East and foreign policy in the near west send markets all over the world into a selling frenzy.
-
Beyond the Bar: Your 5-Step Guide to Discovering Whether a Lawyer Is ShadyResearch shows you can't rely on some state bar websites to vet a lawyer you're considering hiring. Here's how to check out a lawyer before you hire.
-
6 Practical Steps to Help Keep Your Student Focused on College Rather Than the Financial StrainToo many students drop out due to financial strain. This plan can help families plan for the costs and get timely aid that sees students through to graduation.
-
Are You the Doer or the Visionary of Your Advisory Practice? Here's How You Can Make the Leap to Chief Vision OfficerThe key is to transition from a tactical "doer" to a strategic "chief vision officer" by building the teams, processes and brand so your practice can grow.
-
These Unloved Energy Stocks Are a BargainCleaned-up balance sheets and generous dividends make these dirt-cheap energy shares worth a look.
-
You've Heard It Before, But This Investment Advice Still Pays Off"Time in the market beats timing the market" — been there, done that, right? But don't write off the underlying advice. There's a reason it's a popular saying.
-
Are Clients Asking About Adding Crypto to Their Retirement Plans? This Is How Advisers Can Approach This New 401(k) FrontierAdvisers need to establish clear frameworks to address client interest, navigate risks like volatility, and ensure they meet their fiduciary responsibilities.
-
3 Niche Oil and Gas Investments for Next-Gen Wealth BuildersLesser-known segments of the oil and gas sector present unique opportunities for next-gen investors and family offices, as long as they're vetted thoroughly.
