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Amazon Continues Shining As We Shop Differently

May 05, 2021 6:22 AM ETAmazon.com, Inc. (AMZN)25 Comments
Eric Sprague profile picture
Eric Sprague


  • Third-party sales are growing rapidly as no e-commerce marketplace gets products delivered faster than Amazon.
  • The overall growth at Amazon is impressive but the lift in advertising is mind boggling.
  • The advertising segment is sticky as third-party merchants use ads to feed the Amazon algorithm.
Amazon Prime Delivery
Photo by 400tmax/iStock Unreleased via Getty Images


My thesis is that Amazon (NASDAQ:AMZN) is thriving as consumers have gotten used to the convenience of shopping online during the Covid pandemic. In the 2020 letter which was his last annual shareholder letter as the

This article was written by

Eric Sprague profile picture
I'm an individual investor heavily influenced by Warren Buffett and Charlie Munger. Munger's 1994 USC Business School Speech is something I think about a lot: ### Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result. ... Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you're going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum. In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%—or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work. ### Feel free to follow me on twitter: https://twitter.com/ftreric

Analyst’s Disclosure: I am/we are long AMZN, AAPL, SHOP, VOO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (25)

Sergi Medina profile picture
It's the cheapest it has been in many years, yet it's trading in a range for about a year - yeah, I know, after shooting up almost 100 % in just a few months... But it's cheaper every quarter. And this growth and quality usually don't go unnoticed that much time, especially at these valuations.
Long AMZN, my biggest position by far.
Eric Sprague profile picture
@Sergi Medina I agree that it keeps getting cheaper as we see quarter after quarter with incredible growth.
khlim115 profile picture
It seems everyone is cashing in whatever profit they can. Chart suggests it is near a solid short term support. Lets see if it holds.
Price action is not shining. Getting dimmer as it keeps sinking down the well.
The price action on Amazon is among the worst I’ve ever seen. It looks like it wants to drill to $3,000 again. Algorithms control the market now. The stock will only go up when the cycle changes which could be months more of sideways to down action. Splitting the stock would help, but management is vehemently opposed to it at this point. It is what it is
Great article! One takeaway I get - AMZN is all about synergy between different offerings. On the consumer side, Prime ties together retail, video, and music. On the business side there is a synergy between 3P sales and advertising. The rapid growth in the higher margin businesses suggest that cash flow will grow much faster than revenue over the next 5 years. At the same time, the need for huge investment may decrease, although I wonder what the investment in fulfillment will be in foreign markets. That is a huge capital requirement for both Amazon and Walmart these days - and it is difficult for any other company to replicate. Long big tech (FAAMG) and WMT. WD
Eric Sprague profile picture
Thanks, @wdchil! Like you said, the synergy between 3P sales and advertising is noteworthy.
Gpa Bui profile picture
Lately, I noted the prices (of same items) on amzn are much higher than the competitors. Therefore, I am doing much more searches than before to save money.
I think, this will hurt amzn sales.
Gary J is Rich on AMZN profile picture
@Gpa Bui

Nope. 200 million Prime members put price down the priority list to customer service, item choice, convenience, 1 click and done, 5% off with Amazon Chase Visa, on and on.
Eric Sprague profile picture
@Gary J is Rich on AMZN Yeah, I guess it depends on the buyer. For me Amazon is close enough to having the best price that I don't think much about it.
@Gpa Bui Amazon is shown to be the lowest overall in prices chainstoreage.com/...
People under 30 do not know what a mall is.
Buyandhold 2012 profile picture
We shop differently?

I don't shop any differently than I did 50 years ago.

I walk into a store, look around, and if I find something that I like, I buy it and pay for it with my MasterCard.

I hardly ever shop online. I think I once bought two movies from Amazon online. So long ago they were VHS.

When I need to buy airline tickets, I have my son do it for me to avoid having to shop online.

These kids today are tech savvy. They know how to text. They can even use mobile apps.
Bill West profile picture
@Buyandhold 2012
So striving to be a Luddite is a good quality?!
Once you get the online click pay deliver to your door synergies going in your life you will never look back......

I guess you still have that Kenner Close and Play Phonograph too??
Gary J is Rich on AMZN profile picture
@Bill West

LOL some are stuck in the last century. Better them than us.
Buyandhold 2012 profile picture
@Bill West


I have an old Victrola.
Gary J is Rich on AMZN profile picture
You covered it all. So many articles do not even mention the key word at all - the ecosystem called PRIME.
Eric Sprague profile picture
Thanks, @Gary J is Rich on AMZN! Yeah, Prime is a game changer!
BAHAMAS1 profile picture
Thanks for the article and all the work you put into it.

AMZN, at the closing stock price on 4 May 2021 of $3311.87, is damn cheap...imo.

Eric Sprague profile picture
Thanks, @BAHAMAS1! Yeah, given their recent segment numbers the price looks attractive.
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