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Small Business Sellers Are Another Growth Driver for Amazon

Tom Taulli

Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos seems to have the elixir for never-ending growth. The latest quarter was yet another sign of this. Note that revenues spiked 43% to $51 billion. For a company of its scale, this is truly astonishing. No doubt, it’s why investors continue to remain bullish, with Amazon stock up 36% for the year, despite the overall volatility in the market.

Bezos certainly has a knack for targeting secular opportunities. A prime example of this is his foresight to understand the need for cloud services. The result is that AWS (Amazon Web Services) is the dominant player in the industry, beating out biggies like Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).

In the most recent quarter, the business posted a sizzling 49% increase in revenues to $5.44 billion, and operating income rose by 57% to $1.4 billion.

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But of course, there is much more to AMZN stock. In fact, there are critical parts of the business that often get little attention.

Consider Amazon small business sellers. For the most part, these are businesses that leverage the e-commerce and delivery infrastructure of Amazon to sell their own offerings.

According to a report from Amazon, there are now over one million small business sellers in the U.S. These are operations that have $7.5 million or less in annual revenues, which is how the Small Business Administration sets the limit.

Interestingly enough, the announcement from Amazon is likely due to political pressures. As seen with President Donald Trump’s Twitter Inc (NYSE:TWTR) feed, he is certainly no Amazon fan boy! He believes that the company has been largely responsible for the wreckage of small businesses, especially in the retail industry.

So yes, Amazon’s report is a way of showing that its platform can be a big help to small businesses. For example, the company notes that last year:

– Over 300,000 small businesses began selling on Amazon.

– Amazon Lending grew past $3 billion (the business got its start in 2011).

– Customers bought over 1 billion items from Amazon small business sellers during the holiday season and over 140 million items between Thanksgiving and Cyber Monday.


Admittedly, I’m not sure how effective this will be with Trump. But from an investment standpoint, Amazon is certainly getting traction with small business sellers.

More importantly, there is lots of runway left. Keep in mind that there are 30 million small businesses in the U.S., and 60% do not even have websites. In other words, Amazon is in a nice position to benefit from the inevitable move to e-commerce from these companies.

Bottom Line on Amazon Stock

Now it’s tough to gauge the impact of small business sellers on the financials of Amazon. Yet it is encouraging that the company continues to find new ways to capitalize on its massive infrastructure.

Besides, when it comes to companies that focus on small businesses, there are great opportunities. Just look at the success of operators like Square Inc (NYSE:SQ), Wix.Com Ltd (NASDAQ:WIX) and Godaddy Inc (NYSE:GDDY).

But there are other parts of the Amazon business that have benefited from small businesses, such as AWS. The service counts many startups and small businesses that benefit from outsourcing their web systems. Some of these have ultimately turned into large firms like Pinterest, Airbnb and Atlassian Corporation PLC (NASDAQ:TEAM).

It’s true that AMZN stock is far from cheap, with the forward price-to-earnings ratio of 81X. But then again, this is likely not to be too much of an issue so long as the company keeps cranking out the growth. And the good news is that there are few signs that things will be slowing down any time soon.

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Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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