Should I Invest in Amazon Shares?
Amazon is one of the largest companies in the world and also one of the most well-known. The growth of its share price since the company’s foundation is remarkable and still investors continue to flock to the e-commerce heavyweight. With the incredible past success of its share price, have investors missed their chance to invest in Amazon?
In this article, we will take a look at Amazon, analyse its financial performance and its share price and try to help you decide whether investing in Amazon is the right decision for you. We will also guide you through the process of how to invest in Amazon shares with Admirals!
Table of Contents
Amazon – A Brief History
Amazon was founded by current President and Chairman, Jeff Bezos in 1994. Bezos, who had been working on Wall Street, quit his job to avoid missing out on the internet business boom. Thus, with the aid of a $250,000 investment from his parents, Amazon was born, albeit initially under the name of Cadabra Inc.
What started out as an online book retailer operating out of Bezos’ garage has, in the intervening years, evolved into a global e-commerce giant, selling countless products online and spanning various additional industries, including cloud computing, artificial intelligence and digital streaming, as well as owning over 40 subsidiary companies and having significant investments in many others.
In 1997, Amazon went public at $18 per share. If we adjust this figure to take into account Amazon’s three subsequent stock splits, we get an initial price of $1.50 per share. On 1 June 2021, Amazon’s share price closed at $3,320.
Depicted: Admirals MetaTrader 5 – Amazon Weekly Chart. Date Range: 10 April 2011 – 1 June 2021. Date Captured: 2 June 2021. Past performance is not a reliable indicator of future performance.
Given this meteoric rise over the quarter of a century, have potential investors “missed the boat” when it comes to investing in Amazon shares? In the following sections, we will take a closer look at the company and help you decide whether or not to invest in Amazon shares.
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Amazon Financial Performance
When considering whether or not to invest in Amazon, or any company for that matter, it is important to take a detailed look at the company and its fundamentals.
Depicted: Amazon Annual Revenue 2010 – 2020. Chart created by author using data from Amazon
In the chart above, we can see that, since 2010, Amazon’s total revenue has grown steadily year on year, by a Compound Annual Growth Rate (CAGR) of around 38% over the period with no signs of slowing down.
The chart below, which shows net income over the same time period, is more sporadic, with 2020 being by far the stand out year.
Depicted: Amazon Net Income 2010 – 2020. Chart created by author using data from Amazon
Despite Amazon’s high and steadily increasing revenue, its net income – especially up until 2018 – remained comparatively low. This is particularly evident between 2012 and 2014, where combined revenue totalled around $225 billion but, over the same time period, they posted an aggregate loss of $6 billion.
This low profit margin is mainly caused by huge levels of re-investment in the business, in order to drive growth and stay ahead of the competition, with services such as Amazon Prime and Amazon Web Services (AWS).
Amazon Prime, a subscription service which guarantees consumers next day delivery on many items, is well known to actually lose money . However, on average, Amazon users who have a Prime subscription buy far more goods through Amazon than those who do not.
By contrast, AWS has turned out to be fast growing and profitable for Amazon. The service has evolved and grown rapidly since the early 2000s and first became profitable in 2015. Since then it has a become a large part of Amazon’s profitability, currently estimated at more than half.
Over the years consumers have benefitted greatly from Amazon’s investments and innovations and shareholders have benefited from capital growth, even if the company has generated relatively little in the way of profit. However, the increase in net income between 2018 and 2020 may be a reflection that Amazon is also starting to see the benefit of years of investment. Does this mean it a good time to invest in Amazon?
Q1 Results 2021
In April 2021, Amazon released their Q1 results, a brief summary of which we include below:
|Net Income||$8.1 billion|
|Earnings Per Share||$16.09|
Amazon’s Strategy of Diversification
If you are familiar with investing, you have probably read that portfolio diversification is an important part of risk management. The reason behind this being that, if part of your portfolio should drop in value, it will hopefully be offset by your other investments.
Jeff Bezos and Amazon follow a similar strategy. We noted earlier that Amazon started as an online marketplace for books, these days it would take a separate article to delve into all the different products and services which Amazon and its subsidiaries offer. Here, we will just list some of the key products and services which Amazon offer to demonstrate our point:
- Retail Goods - As well as selling products itself, Amazon Marketplace allows third-party sellers to also sell their own goods
- Consumer Electronics - In particular, the Amazon Kindle and Echo smart speakers
- Amazon Fresh - Amazon first announced a grocery delivery service in 2007 and in 2017 acquired Whole Foods Market for $13.4 billion to complement its own service
- Amazon Music
- Prime Video
- Amazon Studios - In 2010, Amazon branched out into television and film production, agreeing a deal to acquire MGM Studios in May 2021 for $8.45 billion
- Amazon Web Services (AWS) - This Amazon subsidiary provides on demand cloud computing platforms and application computing interfaces
An Analysis of the Amazon Share Price
A quick look at the long-term price chart of Amazon tells us that its shares are on a long-term upward trend.
Depicted: Admirals MetaTrader 5 – Amazon Weekly Chart. Date Range: 30 August 2015 – 2 June 2021. Date Captured: 2 June 2021. Past performance is not a reliable indicator of future performance.
In 2018, Amazon share price climbed from an opening price of $1,169 to a high of $2,050 in September. This 75% increase was a reflection of investor confidence following positive quarterly results from Amazon. However, in October, share price began to fall along with most of the technology industry and closed the year at around $1,500 a share, a 28% increase for the year.
In 2019, Amazon’s share price followed a fairly similar trajectory as the previous year. A positive start to the year fizzled out amidst disappointing results, with third quarter net income lower than both the second quarter and the previous year. Share price closed the year with a 23% increase at $1,844 per share, underperforming the S&P500 which rose almost 29% in the same year.
As you will see, highlighted in yellow above, 2020 is where things really started to get interesting for the Amazon share price. As the Covid-19 pandemic spread around the globe, forcing entire countries to lock down and stock markets to plunge, Amazon too suffered a drop in share price. However, this was only shortly lived.
With much of the world forced, or actively encouraged, to remain at home as much as possible, more and more people turned to shopping online. This obviously benefitted Amazon and we can see this clearly displayed in the share price. After falling to a low of $1,610 a share in March, share price shot up 120% to reach a high of £3,547.60 in August - as investors turned to tech stocks as a way to ride out the pandemic.
Since reaching this high in August 2020, Amazon share price has been trading in a range between around $2,900 and $3,500.
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Should I Invest in Amazon Shares?
Firstly, let’s dispense with the elephant in the room, with a current share price of over well over $3,000, investing in Amazon is not cheap and, therefore, not an option for everyone.
When deciding whether or not to invest in Amazon shares, it is important not only to scrutinise as much information about the company as possible, but also to evaluate your own financial position and whether investing in Amazon is the right choice for you.
The Amazon share price has shown incredible growth over its 27 year history, a growth which has not always been reflected in its financial performance. But the important question for investors is; can it continue to sustain such growth in the future?
Amazon has shown time and time again that it is committed to future growth, evidenced by its constant investment and diversification into different industries. The recent agreement to acquire MGM studios for $8.45 billion is the latest example of this and should encourage potential investors about the future of the company.
It is true that Amazon’s recent performance has been helped enormously by the effects of the Covid-19 pandemic. However, it is entirely possible, and some may say likely, that some consumer habits formed by the pandemic, such as online shopping, will be continued long after life returns to normal.
In addition to this, Amazon’s biggest source of profits, AWS, is a strong leader in the fast growing market for cloud computing services. AWS should benefit from a growing market with attractive margins and significant economies of scale for some time to come.
How to Invest in Amazon Shares With Admirals
If, after reading this article, you feel that investing in Amazon is the right decision, look no further than the Invest.MT5 account from Admirals! An Invest.MT5 allows you to invest in Amazon shares and over 4,300 other listed companies around the world! In order to buy Amazon stock, you will need to follow these steps:
- Open an Invest.MT5 account
- Download the MetaTrader 5 trading platform
- Open MetaTrader 5 and head to the ‘Market Watch’ window on the left hand side of the screen. Here, search for the Amazon symbol (AMZN) and add it to Market Watch.
Depicted: Admirals MetaTrader 5 – Market Watch
- Right click on the Amazon symbol in Market Watch and select ‘Chart Window’ to open a price chart for Amazon shares
Depicted: Admirals MetaTrader 5 – Amazon Daily Chart. Date Range: 22 January 2019 – 2 June 2021. Date Captured: 3 June 2021. Past performance is not a reliable indicator of future performance.
- Select ‘New Order’ at the top of the screen, where you can enter the amount of Amazon shares you wish to purchase – as well as a stop loss and take profit if required – and click ‘Buy’ to execute the transaction
Depicted: Admirals MetaTrader 5 – Amazon New Order. Date Captured: 3 June 2021.
Investing With Admirals
An Invest.MT5 account from Admirals allows you to invest in stocks and Exchange-Traded Funds (ETFs) from 15 of the world’s largest stock exchanges! Other benefits of the Invest.MT5 account include:
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