Since its inception, Amazon has seen tremendous growth. What started as a simple online bookstore has now evolved into a global tech giant, becoming one of the largest e-commerce companies in the world.
This global powerhouse keeps growing and diversifying its product offerings, making it an influential player in several industries and a great choice for anyone looking for both a safe and fruitful investment.
But is Amazon a good stock to buy? Let’s dive into the company’s financials and determine if Amazon is worth it for investors.
What is Amazon?
Jeff Bezos founded Amazon in 1994, and it has since grown into a multinational technology company. Originally starting as an online marketplace for books, Amazon has now become the biggest online retailer and one of the most valuable companies in the world. Digital streaming, cloud computing, artificial intelligence, and e-commerce are just a few of the company’s products and services.
With its user-friendly website and fast shipping options, Amazon has changed how people shop online. Customers can find virtually anything they need, from electronics and household items to clothing and groceries.
Amazon has transformed the retail industry and continues to innovate and expand into new areas, making it a dominant force in the tech industry.
Amazon’s Business Ventures
Amazon is more than just an online retail store. The company has expanded its business portfolio since its founding in 1994, including acquiring Whole Foods for approximately $13.7 billion in 2017.
This acquisition marked Amazon’s entry into the grocery market. In response, Whole Foods has expanded its grocery delivery and pickup services, allowing customers to shop more conveniently.
One area where Amazon has excelled is in the development of electronic devices. Among the company’s AI-enhanced products are the popular Amazon Echo devices powered by Alexa, its virtual assistant. Music, reminders, and even controlling smart home devices have become much easier with these devices, transforming the way people interact with technology at home.
The streaming services, Amazon Music and Amazon Prime, have also seen great success in the entertainment industry. With these services, users have access to a variety of music, TV shows, and movies that compete with the likes of Spotify and Netflix.
Amazon also has a powerful cloud computing division called Amazon Web Services (AWS). AWS is a major player in the cloud services industry, providing computing power, storage, and various cloud-based tools and services to businesses worldwide. AWS is a major factor in the company’s financial success, as it contributes significantly to Amazon’s revenue and profits.
Furthermore, Amazon is exploring new frontiers in technology. The company recently launched test satellites as part of its planned internet service, known as Project Kuiper. This project aims to provide high-speed, low-latency internet access to underserved communities around the world.
Technology and innovation are powerful tools Amazon uses to close the digital divide and connect more people around the world. Its expansion into various industries demonstrates the diversification of Amazon’s revenue sources and commitment to innovation in today’s highly competitive business environment.
Revenue and Growth
Revenue is important for investors when evaluating whether a stock like Amazon is a good one to buy. It represents a company’s gross income before expenses are deducted and is often referred to as sales.
For investors, revenue is vital in making investment decisions, as it measures the size of the company, and revenue growth reflects a company’s growth rate.
Amazon’s Annual Revenue Growth Since 2020
Amazon’s sales represent product and service sales and are divided into three categories: North America, International, and AWS.
In its annual financial report for 2022, Amazon reported total net sales of $513.983 billion, which is a breakdown of the following:
- North America: $315,880 billion
- International: $118,007 billion
- AWS: $80,096 billion
Amazon’s annual revenue since 2020 has seen incredible growth:
- Annual revenue in 2020 was $386.064 billion, up 37.62% from 2019
- Annual revenue in 2021 was $469.822 billion, up 21.7% from 2020
- Annual revenue in 2022 was $513.983 billion, up 9.4% from 2021
Revenue growth in 2020 can be attributed to the COVID-19 pandemic, where consumers turned to online shopping for all their basic needs. While some investors may be concerned these incredible growth rates may be short-lived, Amazon has shown positive performance since the pandemic. It also indicates that the company has managed to retain the new customers it acquired since the pandemic.
Amazon’s Annual Revenue Growth in Its First 5 Years of Operation
Amazon is in the running to be one of the first companies in the world to hit $1 trillion in annual revenue, but what type of growth did the company experience in its early days?
- Annual revenue in 1995: $511,000
- Annual revenue in 1996: $15.75 million, up 2,981.41% from 1995
- Annual revenue in 1997: $147.79 million, up 838.57% from 1996
- Annual revenue in 1998: $609.82 million, up 312.63% from 1997
- Annual revenue in 1999: $1.64 billion, up 168.91% from 1998
The first 5 years of Amazon’s operations reflect how the company grew at astonishing rates. The company has never seen negative annual revenue growth since its inception, which is a clear indicator that Amazon may be a good stock to buy for investors looking for a long-term growth stock.
Amazon Q2 2023 Financial Results
Amazon released its latest financial results for Q2 2023, for the quarter ended June 2023. While the company had a challenging 2022, Amazon managed inflation, boosted profitability, and maintained strong growth rates.
Net sales were reported as $134.4 billion for the quarter, an 11% increase compared to Q2 2022.
- North American sales increased by 11% year-over-year (YoY) to $82.5 billion.
- International sales increased by 10% YoY to $29.7 billion.
- AWS sales increased by 12% YoY to $22.1 billion.
Net income, or profit, was reported as $6.7 billion, more than double what analysts had predicted. Compared to the trailing twelve months ending June 30, 2022, operating cash flow grew 74% to $61.8 billion from $35.6 billion. The company’s operating income also soared to $7.7 billion, reflecting a substantial 131.56% YoY growth.
Every day, Amazon obsesses over ways to improve and simplify the lives of its consumers. In its financial earnings release for the quarter, Amazon announced the company delivered its largest selection of products to U.S. Prime members at its quickest-ever speeds, all thanks to AI used in several parts of the business. As a result, U.S. Prime members benefit from free same-day or one-day deliveries.
In addition to fast deliveries, AI is used in the company’s advertising sales, offering more than most other companies. Advertising sales increased by 22% YoY to $10.683 billion in the quarter. With arguably the most users of any e-commerce company, Amazon has access to billions of data that allow it to produce tailored advertisements and give advertisers the best possible exposure for their money.
Amazon’s IPO and Share Price
As of October 11, 2023, Amazon’s market capitalization is $1.360 trillion, making it the 5th most valuable company in the world by market cap.
Amazon went public with its initial public offering (IPO) on May 15, 1997, at $18 per share. Since then, the company’s stock price has experienced both highs and lows. On July 8, 2021, the closing price of Amazon shares reached an all-time high of $186.12.
No one could have predicted how well Amazon would do after its IPO. If you had invested $1,000 in Amazon’s IPO, your shares would be worth $1,896,151.68 by August 4, 2023! Three stock splits, which increased one share purchased in 1997 to twelve shares by the end of 1999, are responsible for the high return.
The average return on investment (ROI) for Amazon stock over the past ten years can be calculated using historical data. The 10-year price total return for Amazon is 740.6%. The 10-year price total return calculates the overall change in price over the previous ten years, adjusted for dividends and splits as necessary.
Why Amazon May Not Be a Good Stock to Buy
When considering if Amazon is a good stock to buy, we must also consider why it may not be a good stock to buy. This will allow investors to truly know if it’s a good fit for their investment portfolios.
Below are 3 reasons why Amazon may not be a good stock to buy.
- Valuation concerns: Amazon has consistently traded at a higher price-to-earnings (P/E) ratio than its competitors. This suggests that the stock may be overvalued, making it potentially risky for investors. The company’s ability to sustain its high valuation and deliver future growth remains to be determined.
- Intense competition: The e-commerce space is highly competitive, with several players vying for market share. Competitors such as Walmart, Alibaba, and eBay pose ongoing threats to Amazon’s dominance. Additionally, emerging e-commerce platforms and delivery services could disrupt Amazon’s business model. With increasing competition, Amazon may struggle to maintain its market share and profitability.
- Regulatory risks: Amazon faces increasing scrutiny from regulators concerned about its market power and potential anti-competitive practices. This regulatory uncertainty could lead to increased compliance costs or even regulatory interventions that impact Amazon’s operations and profitability. The stock may lose investor confidence as a result of these risks.
So, is Amazon a good stock to buy? The answer depends on your investment goals, risk tolerance, and how long you want to invest. Amazon has a dominating position in several industries and has proven to have impressive revenue growth over the years.
While Amazon stock experiences short-term volatility, Amazon may be appealing to many investors. However, ensure you diversify your portfolio with other stocks and investment types, and don’t put all your eggs in one basket. It’s also important to stay informed about how Amazon performs and keep up-to-date with changes in the market.
If you feel that Amazon is a good stock to buy, ensure you do thorough research or speak with a financial advisor for advice before making any investment decisions.
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