Even though Amazon’s (AMZN) revenue is billions of dollars, the firm’s bottom line has generally been negative. Currently, Amazon has free cash flows of $4.4 billion—compared to $1 billion in 2014. Amazon’s revenue growth in the last ten years has been 29.50%. In contrast, its EBITDA (earnings before interest, tax, depreciation, and amortization) and free cash flow growth stand at 23.70% and 11.90%, respectively. In the last 12 months, the revenue, EBITDA, and free cash flow have grown at 16.40%, 32%, and 320.20%, respectively. In comparison, eBay’s (EBAY) revenue has grown by 11.70% in the last 12 months.
“We remain heads-down focused on driving a better customer experience through price, selection, and convenience,” said Amazon CFO Brian Olsavsky in the second quarter earnings call. “We believe putting customers first is the only reliable way to create lasting value for shareholders.”
Amazon beat Walmart
Recently, Amazon beat Walmart (WMT) in terms of market capitalization. It became the world’s most valuable retailer. In 2008, Amazon’s market cap was $25 billion. It has increased substantially since then, as you can see in the above chart. Exponential growth in its e-commerce space as well as immense potential for profit in its cloud computing segment allowed Amazon to overtake Walmart in terms of market cap. Since its inception, Amazon’s revenue has grown at a CAGR (compound annual growth rate) of 20%. In contrast, as we stated in Part 8, the firm’s cloud computing segment grew by 81% in 2Q15.
It’s often stated that future growth is more valuable than current profits. While Walmart has been consistently posting profits, its sales and profits are stagnant. In comparison, Amazon has focused on sales growth by foregoing profits.
You can get diversified exposure to Amazon by investing in the First Trust ISE Cloud Computing Index Fund (SKYY) ETF and the PowerShares QQQ Trust Series 1 ETF (QQQ). They hold 3.55% and 4.87% of the stock.