3 Reasons Amazon Is The World's Best Business (2024)

Why do some smaller companies grow fasterthan big ones? After all, big companies have more capital, talent and customers. The big companies ought to be able to use those resources to maintain theirlead.

But with the notable exception of Amazon — whose stock hit an all-time highafter it announced its earnings on February 1 — many big companies, especially ones with famous names like GE and IBM, struggle to keep growing.

Before getting into why Amazon is different, let's look at its phenomenal results. Amazon — which for years has been growing at over 20% a year —is not slowing down. Instead, itsgrowth rate is accelerating.

Its fourth-quarter revenue surged 38% to $60.5 billion, which beat analysts’ expectations of $59.83 billion. Amazon'sprofit more than doubled to $1.9 billion — a figure that included a $789 million tax benefit, according to the Wall Street Journal.

Amazon expects to keep growingin the current quarter, forecasting first-quarter sales between $47.75 billion and $50.75 billion, which would be up between 34%and42%, respectively.

Amazon projects first-quarter operating income between $300 millionand $1 billion. In 2017's first quarter, it reported $1 billion in operating income, according to the Journal.

Here are thethree reasons I think Amazon is the world's best business.

1. It has a sustainable competitive advantage

Competitive advantage is measured by market share leadership which flows fromthree sources.

— Giving customers more bang for the buck

When people buy things, they compare different suppliers on a ranked set of factors. For Amazon customers those factors, or customer purchase criteria (CPC),include price, fast delivery and reliable service. Consumers choose Amazon because it does better than its competition on these CPC.

— Harnessing capabilities to win at scale

Winning and keeping customers — especially when a companyhas millions of them — depends on doing certain things well. For Amazon, such capabilities include offering a wide selection of products and services, operating an efficientsupply chain to fulfill orders; and providing excellent customer service.

— Sustaining competitive superiority

While many large companies can do the first two things in one industry — think Apple in smart phones — very few can stay ahead as competitors try to copy their strategies and make successful bets on new growth opportunities.

Amazon did this first inonline book selling and has continued to lead — it controls about 40% of the U.S. e-commerce market; its Echo devices have about 75% of the smart-speaker market; it runsa major Hollywood studio; and itsAmazon Web Services(AWS) unit leads with over 40% of the cloud computing market, according to the Journal.

2.Jeff Bezos is the world's best founder/public company CEO

Competitive advantage does not simply happen — CEOs must create it. And as I highlight in my book, Disciplined Growth Strategies, our system of capitalism does a superb job of rewarding CEOs who excel at it.

Specifically, the CEOs with the highest net worth tend to be founders of the largest, fastest-growing companies — people like Amazon's Jeff Bezos, whose net worth now tops the world at $120 billion, Facebook's Mark Zuckerberg and Alphabet's Sergei Brin and Larry Page.

Apple — which at $861billionhas a higher market capitalization than Amazon's $670 billion — suffers because it is so dependent on an 11-year-old product: the iPhone.

Apple CEO Tim Cook is not a founder, though he has squeezed a significant amount of profit from the iPhone and is trying to add services revenues. The company's relatively tepid stock price performance (its shares are up 30% in the last year compared to Amazon's 65%) is the result.

3. Its bets on growth create big new revenue streams

What makes Amazon the world's best business and Bezos its top CEO ishisexceptionalskill atturning bets on growth into wide new revenue streams.

Some of those bets are paying off now— others have potential to do so in the future.

Amazon created AWS by selling to companies the computing services itstarted building in 2000to run its e-commerce operations. Today AWS is growing fast, with Q1 revenues up 45%to $5.11 billion. Its operating income rose about 46% to $1.35 billion, according to the Journal.

Growth can come from well-managed acquisitions as well. For example, its $13.5 billion acquisition of Whole Foods generated $4.52 billion in revenue, representing about 7%of Amazon's revenue — a considerable increase over the $3.5 billion Whole Foods reported in the same period last year, according to the Journal.

And after months of speculation, Amazon announced its health care play — a venture with JPMorgan Chase and Berkshire Hathaway to lower health care costs. It remains to be seen how this venture will achieve lower health care costs or whether these very different companies can work together effectively.

But one thing that makes Amazon so much better than its FANG peers is that it not only makes other bets, it makes them pay off. To wit, Alphabet still gets nearly all its profit from its advertising business. All its other bets — such as self-driving cars and cybersecurity —seem perpetually unable to add to its top line.

Last May, Amazon stock topped $1,000 and was growing at 40% a year. That's when I urged investors tobuy before I predicted it would hit $2,000 a share in 2019.

At the accelerated rate that Amazon is growing, I would not be surprised to see it hit that level this year.