How to Invest in Amazon and Why
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 has been phenomenal and still investors continue to flock to the e-commerce heavyweight. With its incredible past success, have investors missed their chance to buy Amazon shares?
In this article, we will take a look at Amazon, analyse its financial performance and its share price. We will also examine the question “should I invest in Amazon?”, demonstrate how to invest in Amazon stock and much more!
Table of Contents
Amazon – A Brief History
Amazon was founded by Jeff Bezos in 1994. Bezos, who had been working on Wall Street, quit his job to avoid missing out on the internet business boom.
What started out as an online book retailer operating out of Bezos’ garage has 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.
Is Amazon a good stock to buy? Later, we will look more at the question ‘should I invest in Amazon’, but first, let’s look at the company’s recent financial performance.
Amazon Financial Results
When considering whether or not to invest in Amazon stock, or any company’s stock for that matter, it is important to take a detailed look at the company, especially its financial results.
For the last decade or so, generating revenue has not been an issue for Amazon. However, converting this revenue into meaningful profit has been, with founder Bezos favouring investing in future growth over beating earnings targets.
This heavy investment has allowed Amazon to grow and dominate several markets, and the profit inevitably began to follow, with 2017 being its breakout year in this regard. Since then, profits have been more reliable and consistent.
However, 2022 was a tough year for the e-commerce company, with operating profit falling 51% year on year and recording a net loss of $2.7 billion.
|% Change YoY
|Net Income (Loss)
|Earnings per Share (EPS)
Source: Amazon – Full-Year Results 2022
Whilst these numbers may be discouraging to someone considering investing in Amazon shares, it’s worth digging deeper in order to truly understand the headline results.
High inflation in 2022 led to Amazon’s input costs rising. As highlighted in the table above, despite net sales growing a respectable 9.4%, this was eclipsed by total operating expenses rising 12.8%. However, in 2023, inflation cooled in most of Amazon’s key markets and is forecast to continue to do so in 2024.
But what about that net loss of $2.7 billion? This loss looks especially negative when compared to the net income of $33.4 billion in 2021. But, this has largely been caused by the company’s investment in Rivian Automotive.
In 2021, Amazon’s investment in Rivian contributed $11.8 billion to its net income for the year. However, Rivian share price shed more than 80% in 2022, which contributed $(12.7) billion to Amazon’s net loss in 2022.
Therefore, Amazon’s losses last year were largely due to external factors rather than any particular missteps on the part of the company. So, is buying Amazon shares a good idea? Let’s take a look at Amazon’s recent performance in the stock market.
Analysis of Amazon Share Price
Amazon’s performance in the stock market has been nothing short of phenomenal since its debut. Before we address the question of ‘should I invest in Amazon’, let’s take a look at the evolution of the Amazon share price over the last five years.
In the lead up to 2020, Amazon shares were following a long-term uptrend, gaining more than 170% in five years.
In 2020, as the Covid-19 pandemic spread around the world, Amazon was one of a number of technology stocks which greatly benefitted from the restrictions in place. The Amazon share price soared more than 76% by the end of the year, but slowed in 2021, only adding a further 2% for the year.
|A $1,000 investment in Amazon at the IPO price of $18, would have bought you 55 shares. Adjusting for subsequent Amazon stock splits, this position would have been worth $1,108,800 by the end of 2022.
However, Amazon share price slumped almost 50% in 2022, caught up in the general market downturn amidst high inflation, rising interest rates and general economic uncertainty. In 2023, share price recovered, however, it remains below its all-time high. Does this downturn in share price present investors with an opportunity to buy shares in Amazon at a cheaper price?
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Should I Invest in Amazon Stock?
In June 2022, Amazon split their stock by a ratio of 20:1, making individual shares of Amazon stock more affordable to new investors. But, more affordable or not, is investing in Amazon a good idea?
We can divide Amazon’s businesses into two main segments: e-commerce (including revenue generated from Amazon Prime), and Amazon Web Services (AWS).
AWS is Amazon’s cloud computing business which dominates this rapidly expanding marketplace. In Q1 2023, AWS accounted for almost a third of the global cloud market, well ahead of its closest rivals Microsoft Azure and Google Cloud.
Whilst e-commerce generates the lion’s share of revenue, accounting for more than 84% of net sales in 2022, its profit margins are notoriously low. In 2022, online retail generated almost $434 billion in net sales – yet, despite this vast figure – the division recorded operating losses of $10.6 billion.
By comparison, AWS generates a lot less revenue, although this revenue is growing rapidly, and its profit margins are significantly higher. In 2022, AWS net sales amounted to $80.1 billion (up 29% year on year) and operating income came in at $22.8 billion. That represents an operating margin of 28.5%.
Understandably, the growth of AWS has been a great attraction to investors. However, they shouldn’t necessarily be put off by the low profit margins of Amazon’s main e-commerce business.
Amazon provides an unrivalled customer service in many ways, luring customers into their ecosystem and trapping them with a number of benefits that keep them coming back for more.
Their Prime membership ensures next day delivery on a wide range of goods, which customers take advantage of by ordering more than they would otherwise. The additional benefits this membership provides, such as Prime Video, help keep their customers roped in.
This combination of a fast growing, highly profitable business in AWS, and a retail operation that provides a unique experience and keeps customers coming back for more, could make investing in Amazon shares an attractive long-term prospect for some investors.
However, people considering buying shares in Amazon will need to remain braced for ongoing volatility, although inflation is cooling in most of Amazon’s key markets, the economic outlook remains slightly uncertain.
Furthermore, interest rates are likely to remain elevated for the foreseeable future, which could impact consumption as well as keep the cost of servicing debt high for Amazon.
How to Buy Amazon Shares
If you feel that investing in Amazon stock is the right decision for you, you can buy shares in Amazon with the Invest.MT5 account from Admirals. In order to learn how to buy Amazon stock, follow these steps:
- Open an Invest.MT5 account and log in to the Dashboard
- Next to your account details, click ‘Invest’ to open our web trading platform
- Search for Amazon shares to open the instrument page
- Select how many Amazon shares you want to buy on the right hand side of the screen and click ‘Buy’ to send the order to the market!
Why Invest in Amazon with Admirals?
An Invest.MT5 account from Admirals allows you to invest in Amazon shares, more than 4,300 other stocks and over 300 Exchange-Traded Funds (ETFs) from 15 of the world’s largest stock exchanges! Other benefits of the Invest.MT5 account include:
- Competitive transaction commissions and no account maintenance fee
- The ability to open an account with a minimum deposit of just €1
- Exclusive access to our Premium Analytics portal, where you can find the latest news, technical insight and market sentiment at no additional cost!
- The comfort of investing with a broker which is authorised and regulated by the UK Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySEC), the Jordan Securities Commission (JSC) and other well-known financial regulators
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