Bezos is about to step down as CEO of Amazon. The economy is as shaky as ever. Growth stocks are falling out of favor. But, somehow, Amazon’s stock price keeps going up. Does this make Amazon a good or bad investment?
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In today’s blog, we’re going to take yet another look at Amazon stock. Amazon managed to climb pretty high since the start of 2021, and people have been asking me if I still think it’s a good investment. And, since I want to clear things up right away, I’ll tell you that, yes, I do believe that Amazon is still an excellent company to have in your portfolio. Of course, the economic situation is … less than ideal, and the stock price isn’t giving any signs of dipping anytime soon, so I understand where the questions are coming from. But don’t worry, because I’ll explain my reasoning in detail as usual. Check out my other blogs such as, “10 Mistakes You Should Not Make With Investing In Stocks“.
Oh, and before we jump right in, I just want to remind you that this is just my opinion about the company and its current position on the stock market. Just because I like the stock doesn’t mean that you have to like it. Just because I buy it, it doesn’t mean that you have to buy it. I’m showing you things from my perspective because I believe that it could be beneficial for you in the long run. Still, it’s just one way of looking at things, and it’s based on what I’ve learned from my time in the Stock Market and from observing the strategies of other successful investors over the years.
Alright, now with all of that out of the way, let’s get on with the actual content for today, shall we?
So, here are the key factors that make Amazon an excellent choice for me:
- Amazon is one of the few businesses that managed to get ahead during the lockdowns (e-commerce boomed)
- Amazon has really solid logistics (massive tech & logistical moat vs the competition, Amazon is actually close to passing FedEx and UPS in package deliveries)
- Amazon reinvests heavily back into the business (massive growth – profits up 84% & revenue up 38%)
- Amazon has incredible potential to keep growing (massive demand)
- Amazon has good diversification (e-commerce, cloud storage, digital services & streaming)
With Jeff Bezos about to step down from the CEO role (expected to happen in July), it will be Andrew Jasssy’s time to shine. And if that name doesn’t quite ring a bell, don’t worry, because I’ll give you a hint. Jassy has been with Amazon since before their IPO back in 1997, and he was also one of the key people behind the launch of the entire Amazon Web Services branch. According to last year’s reports, AWS currently makes up about 12% of Amazon’s total revenue and almost 60% of its operating income. Besides, Bezos isn’t going away for good – he’ll still hold on to an executive chair to ensure Amazon’s wellbeing moving forward.
E-commerce and the future
Why I’m such a big believer in Amazon as a business
According to Emarketer, Amazon holds 40% of the e-commerce market share in the US. For comparison, their “closest competitor” is Walmart, sitting on a whopping 7%. The remaining 53% are split between a dozen companies, each holding 4% or less. And, despite their massive size, they manage to keep growing year after year. For 2020, Amazon’s e-commerce sales were up by 44% year-over-year.
Now, compared to most of you who read these blogs, I’m a bit old-fashioned. I’m still very used to the idea of going to the store and physically looking through goods and items for my shopping. The younger generations, on the other hand, are all about the digital stuff. And, I’ve got to admit that it really is a lot more convenient. It saves a lot of time (traveling, looking through the shop, check if the stuff is in stock, etc.), and I can do my shopping during or immediately after researching the products.
And now, in the aftermath of the lockdowns, people are starting to pick up on these upsides big time. Why spend the time (and the gas) to physically drive to the store and deal with carrying your items back home when you can just press a button and have everything delivered to your doorstep, right? And a recent survey confirms this, with nearly 69% of people stating that they’re going to stick to online purchases even after all of the restrictions go away.
The Untapped Potential
Even though 2020 was a super-strong year for e-commerce, there are still many people who haven’t started shopping online. The mid-2020 reports show us that only around 7.5% of all US retail purchases were done digitally. Here, in the UK, the numbers are slightly higher, with 14.5%, and China takes the cake with its 15.9%. So, yeah, there’s still plenty of room for Amazon to grow.
But wait, there’s more!
Oh, and remember how I keep going on about Amazon’s diversification? They also happen to hold over 32% of the worldwide cloud market with their Amazon Web Services. Again, for the sake of comparison, Microsoft (Azure) comes in second, with 19%. AWS is also the most profitable part of Amazon’s business. And, yes, that same guy who was the driving force behind AWS is going to be the next CEO.
Then, you’ve also got their Digital Ad Marketing share (market share already into the double digits for the US & higher growth than their e-commerce and web services), amazon prime video for streaming services, and their prime gaming stuff. They’re just incredibly solid all-around.
Despite all of my love and praise for Amazon, the company is not 100% immune to competition. They’ve got a really solid … everything, but if we zoom out and take a look at the global numbers, Amazon actually lost market shares. And don’t get me wrong here – I’m not trying to go back on what I said. It’s just that e-commerce as a whole saw a ton of growth.
Additionally, even though Amazon is trying its best to be a “one-stop-shop” sort of business, they are still far from achieving that. The more focused companies, like Wayfair (furniture) or Etsy (arts, crafts & handmade stuff), are still solid leaders in their respective niches.
Then, you’ve also got the “Amazon is getting too big crowd”, who are worried about the potential implications of tech businesses getting too big and completely taking over the market. As a result, the House Subcommittee on Antitrust came out with proposals that (if passed) would negatively impact the power of big tech.
And, finally, you’ve also got the valuation. Amazon is currently sitting at a share price of about 60 times forward earnings and 24 times trailing cash flow from operations. The company is definitely not valued as richly as before, but it’s still assumed that they’ll keep leveraging their scale to bring higher profit margins as they keep growing.
Alright, let’s wrap things up for today.
From a long-term investment standpoint, this means that Amazon is a very safe and reliable investment. Even if people buy their shares when the prices are higher than usual, all they’ve got to do is sit in their position and give the company more time to grow because that’s just what Amazon does. They grow, and the share price keeps going up and up.
Amazon has shown us some incredible growth over the years, and, if you ask me, there’s absolutely no reason to believe that this trend will change anytime soon. Yes, there are competitors, and, yes, there is the potential of a hiccup or two along the way, but I’m reasonably confident that Amazon has a bright future ahead of it.
However, this doesn’t mean that I’m going to just dump all of my money into Amazon stock or sell my other positions just to get more shares with them. I always want to keep my portfolio neatly diversified. I keep adding in small increments if I see good opportunities or significant dips, but I still like it, even at its current price. If I didn’t already have Amazon in my portfolio, I’d definitely be looking to buy even at these levels. Again, that’s just my opinion as a long-term investor who plans to hold for at least five, or preferably, ten-fifteen years at the minimum.
Now, if you’re looking for ways to take your investing career to the next level, I highly suggest checking out our Private Investing Group. There, you’ll find more of the same, plus a ton of exclusive content, blogs, detailed analysis, discussions, a couple of courses and e-books (written by yours truly and 100% free for all members), a live chat, and more! I’ll drop you a link down in the description as usual.
And that’s it for today, guys. If you enjoy my content regarding Amazon, you could always show your appreciation by hitting the like button and, oh, I don’t know … sharing the blog with your friends & family? Who knows, maybe they’ll also decide to give long-term investing a shot.
As always, feel free to leave your thoughts and ideas for future blogs in the comments section below. I’ve got some interesting stuff planned for the next few weeks, but I can always try to find an hour or two and put together a quick explanation blog for you guys.
Thank you all for reading, and until next time!
Recommended for further reading:
- Business Adventures: Twelve Classic Tales from the World of Wall Street
- The Snowball: Warren Buffett and the Business of Life
- The Simple Path to Wealth: Your road map to financial independence and a rich
- The Business Book: Big Ideas Simply Explained
- The Lean Startup: How Constant Innovation Creates Radically Successful Businesses