Amazon is one of the most popular and profitable e-commerce companies in the world. Amazon stocks are also popular among investors due to their high ROI. But should you invest in amazon stock right now or not, that is the question to consider. We’ll address that in this post. So, settle down and read on!
When we talk about e-commerce companies in the world, Amazon stands tall in terms of revenues. Proudly holding the title of “World’s Largest Online Retailer”, Amazon now generates revenue over $61 billion. It holds multiple business units that raise its profit margins and accelerate revenue growth.
When it comes to generating massive investor health, Amazon stocks have been proved as the most successful with a return of around 2,450% in the last ten years. However looking at current market conditions, a question that is still lingering in the minds of various investors is – Should I buy Amazon stock right now? Before we move further, let’s find out how Amazon started and how it became a player.
Brief History of Amazon
The year was 1994 when Jeff Bezos (innovative founder of Amazon) recognized the magnitude of the internet revolution. He then decided to quit his job and start his own internet-based commerce company. Out of the list of top 20 products to sell online, he decided to start with the ‘books’ because of their universal demands and lower costs. So, he started Amazon as an online bookstore, which later forayed into different categories.
Bezos knew very well that the only way to succeed in online business is to grow bigger and faster. With years of exhaustible efforts and extensive expertise, the company is now creating exceptional limestone every year. Today, the company sells everything from books to electronics, furniture, garments, and much more.
The Rise of Amazon Stocks & Prices
Who would have predicted back then that an online book store would become one of the most dominant e-commerce platforms in the world? Who would have known that one day Amazon will offer everything from books to high-end fashion items? If you would have invested $10,000 at Amazon in 1997, you would have garnered around $4.9 million of returns today.
From $18 in 1997 to approximately $948 in the later years, there has been a 5,166% increase in Amazon stock price. If we talk about 2020, Amazon generated $96.1 billion in net sales during the third quarter, which is 37% more as compared to $70 billion in the same quarter in 2019. In the last 20 years, the return from Amazon stocks is standing at 8,400%. That’s all about the past, the company’s ROI in the future is the fact to discuss.
So, let’s have a look at some other aspects to figure out whether or not the company remains a strong bet for 2020 and forthcoming years.
Important Aspects To Consider Before Buying Amazon Stocks
If you wish to invest in Amazon stock, then do consider these aspects.
High Resistance To COVID-19
Although various other online businesses were terribly shaken due to the COVID-19 pandemic, Amazon stocks generated higher returns of up to 75% in 2020, thus demonstrating a strong resistance to COVID-19. With all the markets and industries shutting down, various people faced an uphill battle in their businesses. However, Amazon remained well-positioned and stubborn in terms of online sales and generating revenues.
Owing to the COVID-19 pandemic, people dramatically shifted to online platforms for purchasing items and essentials. It accelerated online sales in a significant manner. In the first 6 months of 2020, Amazon sales reached 33.5%, i.e., at $164.36 billion. During the second quarter, the company also increased the capacity of grocery delivery by 160% and almost tripled the sales of online groceries during the pandemic. Moreover, online global sales are expected to reach $6.54 trillion in 2023. Hence, Amazon will leave no stone unturned to grow its business at a faster pace.
Largest Global Cloud
Although the largest business option for Amazon is e-Commerce, it also receives profound profits from Amazon Web Services (AWS). From the global sales of storage, compute, database to providing services for start-ups, academic institutions, and government agencies, Amazon derives significant revenues.
In the 2nd quarter of 2020, the sales from AWS jumped to 29%, that is, $11.6 billion. It accounted for 12.2% of the total sales generated. According to the Synergy Research Group, Amazon Web Services constitutes 33% of the global cloud infrastructure. The total global cloud infrastructure sale by Amazon for the past 12 months is $111 billion. Similar to e-commerce, Amazon’s cloud business has also remained resistant to COVID-19.
New Markets & Business Growth
Amazon has been continuously expanding its market and growing its business in a significant way. In 2017, the company paid $13.4 billion to purchase Whole Foods Market. It then gradually moved to food and groceries delivery. Amazon has various other businesses that have a good scope for growth and development. Back in 2014, it acquired Twitch for $1 billion, which is now the world’s largest game streaming platform.
Furthermore, Amazon continues to make heavy investments in transportation, video content, and online streaming to compete against Netflix and other brands. When all the entertainment spots were shut down due to COVID-19, people heavily relied on online content to keep themselves occupied and happy. Amazon Prime Video continued to provide a plethora of benefits to the company.
Besides, Amazon has now become the third-largest digital advertising platform in the world. Therefore, the company is continuing to provide ad services to various sellers and publishers and is receiving enormous profits. In the second quarter, Amazon ad sales reached 41%, i.e., $4.2 billion (according to Ad News Report).
In the second quarter, the estimated revenue forecast for Amazon was $81.53 billion. However, Amazon has beaten up the forecast when it reported sales of $88.9 billion. What was more surprising for many investors was the fact that the company’s adjusted earnings were 600% higher than the estimations made by the analysts. On Oct 29, the adjusted earnings per share were reported to be $12.37, which was much higher than the estimated $7.48.
A cursory glance at the history of Amazon shows that the company has been using a robust marketing strategy by focusing on the top-line growth and sacrificing profit margins for extensive positive results. It is this strategy that has made Amazon attain the topmost position in the business world.
Expectations To Increase Earnings
Various analysts have estimated that the company will increase its earnings at a rate of 36% per year for the next five years. Quite impressive, right?
What are the Possible Risks of Buying Amazon Stocks Now?
Let’s now have a look at some possible risks that might decrease the value of amazon stocks.
- Due to the increasing e-Commerce competition, Amazon stocks may grow slower than expected.
- Although Amazon is the largest online retailer, it is still facing high competition in direct-to-consumer online sales.
- According to Bailey, additional risks might include the diminishing enthusiasm for FAANG (Facebook, Apple, Amazon, Netflix, and Alphabet) stock. It will become really hard for Amazon to keep the enthusiasm intact once it will start declining.
- Sustaining the rates of growth to justify the price-earnings ratio is itself a challenging task in the highly competitive market.
Should You Buy The Amazon Stocks?
Now, we come back to the question in purview. If we compare the risks with the company’s potential, there are fewer reasons to not buy Amazon stocks.
After digging into the company’s net incomes, earnings, revenue generations, management system, diversified business model, marketing strategies, and suitability, one can easily detect that Amazon has great growth potential for the future years. This simply means Amazon is a great buy today!
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