- Amazon (AMZN) is the third-largest company in the world by revenue
- Annual loss reported; AWS operating income excess $20 billion
- Stock remains bearish despite a bullish Wall Street
Amazon Inc was conceived in 1994 when Jeff Bezos had a ‘calling’ in selling books over the internet. Like most Silicon Valley legends, Amazon grew from a garage.
In those pioneering days, few had any idea what ‘internet’ was, let alone ‘B2C’, short for ‘Business to Consumers’ commerce. Computers were still very much a rare commodity in household. Thus Amazon became one of the first contenders to stake its success on the World Wide Web. Other leading names then included Ebay, Yahoo, Netscape et cetera.
What stood Amazon out from this pack of internet greats was its survivability. Not only did Amazon survived the crash of 2001-2, it thrived and grew into a retail colossus. Sales in 2022 totalled $514 billion, a figure that ranked third largest in the world. As a historical note, Amazon’s revenue in 1998 was a mere $613 million. Now that’s the sort of growth companies that we all want to invest in.
With a growth rate as high as that, no wonder investors were mesmerised. Amazon’s stock grew by leaps and bounds. Before its stock split in 2022, Amazon was trading in the vicinity of $3,500. Note this: two decades ago at the nadir of the dot-com crash, Amazon languished at $6. At that time, many internet bubble stocks imploded and soon ceased trading. Not Bezos’ Amazon. It continued to invest in its business and diversified its product offerings such as electronics, Merchant Programs and Amazon Prime Subscriptions. Sales boomed.
Amazon Web Services (AWS) followed soon, which contributed to its bottom line in a major way. AWS is a cloud service for thousands of customers large and small. AWS sales lats year alone was a staggering $80 billion; operating income totalled $20 billion.
In other words, Jeff Bezos has enacted a commercial system that is ‘sticky’ enough for customers to return year after year. Amazon now offers products that could satisfy an entire household, from books to entertainment. This Amazon system propelled Jeff Bezos to be the richest person on earth at one point. Amazon was the second company after Apple to hit $1 trillion in market cap back in 2018.
That’s the story of Amazon in the past. A great one if you rode the share all through the bull run. But what about the future? Is Amazon still investable? Has it turned ex-growth (yet)?
Is Amazon (AMZN) a good investment in the long term?
For one, I’m not sure if Amazon can repeat its amazing hypergrowth going forward. The reason is simple: it is too big now. How do you grow a $500 billion revenue company 20% y-o-y? The law of gravity dictates that sales will eventually even out as customers’ purse flatten. Customers – retail and institutional – can only buy so much. Therefore sales have started to plateau.
Second, Amazon’s retail segment is hit by a combination of the widely-reported problems, including first strikes ever in its warehouse and a retrenchment of 18,000 works worldwide. This segment of the company is now reporting losses as inflation bites and costs soar.
Third, the boom for tech companies appears to be over. Many FAANG stocks have corrected sharply in 2022, suggesting a sector issue. As a reminder, all through the 2021 stock boom, Amazon underperformed the market. A poor relative strength is not great point to buy a stock.
Verdict: Amazon under Bezos was an amazing American growth story. But the company is now too big to repeat its fantastic run. At $1 trillion in market capitalisation, the company may struggle to increase its valuation significantly. As a new investor, I would wait further until its current bear run is completed – or at least found a floor of some sort.
The best time to buy Amazon shares is when the market is very shaky and depressed.
As you can see from Amazon’s long-term (log scale), the company bottomed out in 2002, 2006, 2008 – all of which have coincided with market weakness.
Again, readers may point out that the market (and Amazon) then are markedly different beasts. This past pattern may not work this time. Yes, that’s true. But remember Amazon is now a major company with huge resources at its disposal – resources that may help it to tackle the current investment climate better than most companies.
It is unlikely that Amazon’s share price will revisit its 2008 lows (a 90% drop from current levels). Therefore, potentially watch to buy on major market weakness; technical support noted near $60.
In 2022, Amazon suffered a net loss of $2.2 billion, compared to a net income of $33 billion in 2021.
This is due to a financial loss in the retail segment and a “pre-tax valuation loss of $12.7 billion” in Rivian Automotive (RIVN). The auto company, in which Amazon has invested at least 10%, collapsed 80% from its 2021 closing price of $100.
If that item is factored out, Amazon would still be in profit. But Amazon has always prized cash flow over profits, as Jeff Bezos wrote numerous times (eg 1997): “When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.“
“Why focus on cash flows?” asked Bezos, “Because a share of stock is a share of a company’s future cash flows, and, as a result, cash flows more than any other single variable seem to do the best job of explaining a company’s stock price over the long term.“
In 2022, AMZN’s cash flow is negative. In fact, the company’s fees cash flow (FCF) has been in the red since late 2021. This probably explains the stock’s flattened stock price. Last quarter FCF amounted to more than negative $11 billion. While this is bad, the good thing is that FCF is slowly increasing. At this rate, Amazon’s FCF could turn positive in the next couple of years. This may help to re-rate the stock.
Source: Amazon Inc
Amazon’s share price rebounded somewhat from its late 2022 lows. There are a few reasons for this:
- A less hawkish monetary policy – is expected for the next few months. This resulted in a more bullish tone for the market
- Tech stocks rebound – which included Amazon too. As a example, Meta (META) is now up nearly 100% from its 2022 lows.
- Earnings – are expected to increase in the next few quarters as Amazon retrenches workers and the economy muddles through
Technically, however, Amazon’s shares have not reversed the pattern of falling highs. Its downtrend from $180 remains intact and there is a risk of that downtrend resuming if the economic outlook darkens again.
According to most analyst aggregator websites, the balance of forecasts for Amazon is bullish.
In the Financial Times, for example, 49 out of 53 brokers are rating Amazon as ‘Buy’ or ‘Outperform’. Only four are rating AMZN as ‘Hold’ or ‘Underperform’. There is no sell at all. This is telling: Wall Street is uber bullish on the retail company.
On Amazon’s median price target, the level is at $135. This is about 30% above its current price ($102).
Overall, it is clear that few brokers are negative on Amazon. They expect the company to continue to grow in the near future. Will this happen? Perhaps. But most risk capital is now on the long side.
To buy shares in Amazon (NASDAQ:AMZN), you need a trading or share dealing account. Follow these three steps if you want to buy Amazon shares from the UK:
- Decide if you want to buy Amazon shares in the short-term or invest in the long-term
- Compare share dealing and trading fees in our comparison tables
- Choose which broker is right for you and open an account
Buying one NASDAQ:AMZN share costs $98.13. However, as well as the $98.13 cost of buying each share you will also have to pay any relevant tax, commission when you buy and sell shares, custody fees for holding your shares on your account and foreign exchange fees for converting GBP into USD. You also have to consider the difference between the bid price (the price at which you sell shares) and the offer price (the price at which you buy shares). These fees vary depending on what sort of account you open, and with what broker. You can compare the different costs associated with the different types of trading and investing accounts in our comparison tables below.
The current NASDAQ:AMZN share price is $98.13 which is a change of 0.58 or 0.59% from the last closing price of 98.13 with 56,144,801 shares traded giving NASDAQ:AMZN a market capitalisation of $1,005,563,595,655. The most recent daily high has been 98.3 and daily low 96.4. The NASDAQ:AMZN share price 52 week high has been 170.83 and the 52 week low 81.43. Based on the most recent NASDAQ:AMZN share price opening of 98.13, the current NASDAQ:AMZN EPS (earnings per share) are 0.27 and the PE (price earnings ratio) is 104.2.
Pricing data automatically updates every 15 minutes
You can use this table to compare the best brokers for trading Amazon Shares. All brokers in this list are authorised and regulated by the FCA. CFDs & spread betting carries a high level or risk and losses can exceed your deposits.
Amazon share price data last updated 24/03/2023 16:00.