Investing in Amazon: What to consider
Amazon is one of the world’s most recognizable brands and a global leader in eCommerce. It is the largest retailer in the US and the country’s fourth-largest company. Since its inception in 1994, the company has been at the forefront of the online shopping industry and has introduced numerous innovations. Despite having several flops, such as the short-lived Fire Phone, the company is constantly introducing new products and services, while expanding its offerings through the acquisition of other companies.
The most important thing to remember about Amazon is that its main goal is disruption of consumer culture. Despite being hugely profitable and having a sizable market share, Amazon CEO Jeff Bezos’ vision is to constantly improve the company’s clients’ experience. Therefore, it is safe to assume that the AMZN stock price will continue to be affected by the company’s various attempts at reaching more consumers and adding to the experience of existing customers.
Amazon stock price has quadrupled over the past five years, and it doesn’t seem to be stopping. Alongside nurturing its eCommerce platform, the company is taking strides in the behind-the-scenes aspects of its business, with dozens of logistic centers in the US and a shipping array which rivals the likes of UPS and FedEx. Moreover, the company has expanded into other fields, such as cloud services and on-demand video content.
Who should include Amazon in their portfolios?
Thematic investors in the tech sector: Amazon is one of the largest tech companies in the world, and is showing impressive growth year-over-year.
Consumer-focused investors: Consumerism is one of the key driving forces of the global economy and doesn’t seem to be slowing down. Amazon is the global leader in the field and could present an obvious choice for those wishing to invest in consumer-facing companies.
“Buy and hold” traders: The company’s annual growth in recent years has been very impressive, and Amazon could present an interesting option for those who are looking for long-term investments.
Day traders: Being a high-profile company, the AMZN stock could present significant single-day swings on days in which it launches new products, share financial reports, or makes other important announcements.
What drives Amazon’s stock price?
With a market cap of over $400 billion and various subsidiaries offering an array of services, Amazon has a presence in many markets in the US and the rest of the world. Therefore, there is no single factor which affects its stock price, but rather, an extensive arc of factors which can push AMZN price up or down.
When looking at the Amazon chart, it is apparent that financial reports and product launches are key factors for price-changes. However, it is important to remember that much of the company’s shares are held by long-term investors, including its founder and CEO Jeff Bezos, who controls some 17% of the company. Therefore, the company’s policy is still very much dictated by the founder, who has said before that he is not afraid of failure.
Basically, this means that the company will continue to experiment in new products and features, knowing that its day-to-day operations are robust enough to keep the company afloat even if some of these experiments fail. Moreover, since Bezos is a firm believer in the company’s amorphic mission statement of improving consumer experience around the world, it is not unlikely that the company will be expanding into new markets and introducing revolutionary new products and services in coming years.
Amazon stock: There’s room for growth
Amazon is huge, no doubt. However, it still has a lot of room to grow. Well over 50% of the company’s business still comes from the US, meaning it has an untapped international market to expand into. Additionally, according to data retrieved in 2016, less than 10% of retail sales in the US are conducted online, so as the practice of online purchases becomes more commonplace, Amazon will no-doubt see a boot in its activity.
The company’s other main service is cloud storage, and Amazon Web Services (AWS) is the largest cloud hosting provider in the world. Despite being the market leader, the need for cloud services is constantly increasing, and if Amazon will be able to keep up with demand, AWS will continue to be another cash cow for the company.
History of Amazon
Founded in 1994 as Cadabra, Jeff Bezos renamed the company Amazon before its website launched the following year. At first, the company sold books over the internet and operated out of Bezos’ garage. When looking at the reasons for founding the company, it is easy to understand its success. Bezos said he read that online commerce is about to become a major aspect of retail and decided to be an early part of it. Next, he created a list of 20 products that could be sold online, and eventually chose to focus on books, since they’re relatively inexpensive and could be shipped easily. This form of thinking, of materializing the concept before focusing on a product is still a key factor in Amazon’s philosophy.
The company went public in 1997 at a price of $18 per share. During its 20+ years of operation, Amazon continued to expand its offerings, eventually becoming a platform for independent merchants, thus rivaling another eCommerce giant, eBay. The company has since expanded into a wide variety of fields and serves millions of private and institutional customers around the globe, and in 2016, crossed the $800 share price mark.
Conclusion: Amazon is too big to fail
There are a number of financial analysts who recommend buying AMZN and holding the stock indefinitely. The reasoning behind this is that Amazon is miles ahead of many of its competitors in a field that has huge growth potential. With the amount of online transactions growing every year, more markets receiving access to high-speed internet, and new companies joining AWS - it seems that Amazon will be a part of the global economy for many years to come. Additionally, Amazon has reached a point in which, much like Google, it is making its own rules while controlling its playing field. With innovations still to come in shipping, hosting services and virtually every field Amazon operates in, it is more than likely that the company will retain its status as one of the world’s leading companies.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.