Decoding The Stock - AMAZON
With thousands of listed companies in the stock market, there are a plethora of options available for investors. There is a vast ocean of opportunities from popular blue-chip stocks to small mid-cap and penny stocks. However, the primary objective of any investor is to generate high returns on their investment. This can only be achieved if the investments are made in well-analyzed and fundamentally strong stocks, as true wealth can only be created in the long term. While analyzing a company may sound like a challenging task, in reality, it is not that difficult. We at Financial Education believe in simplifying things and taking the no-nonsense approach when it comes to investing.
So, in this article of “Decoding The Stock”, we are going to take a look at one of the largest blue-chip stocks; AMAZON. Amazon is one of the largest multinational technology companies in the United States and dominates the e-commerce industry. The online e-commerce sector has seen tremendous growth in the last few years, especially after the pandemic, as millions of people shifted to online shopping.
Amazon and its stock have seen tremendous growth in 2020 itself, largely fueled by the pandemic as conventional ways of shopping were no longer an option. Rising by almost 76% in 2020, Amazon is one such tech stock that has outperformed the market and delivered stellar returns despite the 2020 Covid market crash. In this article, we shall explore Amazon and its stock in detail to give you a better picture of this organization so that you can make better investment decisions. So, let’s get started!
Understanding the Basics of AMAZON INC.
Before we discuss any further, let us understand Amazon Inc. as a company. Doing so will give you a better idea of what exactly Amazon does and will help you in making well-informed decisions. Amazon.com, Inc. is an American multinational technology company that focuses on cloud computing, e-commerce, artificial intelligence, and digital streaming.
Based in Seattle, Washington, Amazon is one of the Big Five companies in the U.S. information technology industry, along with Apple, Google, Microsoft, and Facebook. This tech giant has also been referred to as “One of the most influential economic and cultural focus in the world”. Amazon is also the world’s most valuable brand.
Founded on July 5, 1994, Amazon Inc. was started by Jeff Bezos in his garage in Bellevue, Washington. Originally, Amazon.com was an online marketplace for books but soon expanded to other areas such as electronics, video games, software, furniture, apparel, toys, food and edible items, Jewelry, and more. By 2015, Amazon surpassed the retail giant “Walmart” as the most valuable retailer in the United States by market capitalization.
Soon after in 2017, Amazon acquired “Whole Foods Market” for US$13.4 billion. This helped Amazon increase its footprint as a physical retailer significantly. By 2018, Amazon had surpassed 100 million subscribers worldwide and they introduced their exclusive services such as Amazon Prime and their two-day delivery service.
Amazon is known for its disruption of well-established industries through technological innovation. Apart from being the world’s largest online marketplace, Amazon is also the largest live streaming platform, cloud computing platform, and AI assistant provider, as per market capitalization and overall revenue. Amazon is also the largest internet company by revenue in the world. Being one of the most valuable companies in the world, Amazon is also the second-largest private employer in the United States. As of 2021, Amazon has the highest global brand valuation making it one of the most recognizable brands on the entire planet.
Apart from its major business areas such as e-commerce, Amazon is also involved in the digital media industry with its platforms such as Amazon Prime Video, Amazon Music, Twitch, and Audible. Amazon also produces consumer electronics such as Fire tablets, Kindle e-readers, Fire TV, and their line-up of echo devices. Over the years, Amazon has also acquired several companies that include Ring, Twitch, IMDb, and Whole Foods Market.
With a market capitalization of over $1.6 billion as of June 2021, it is one of the largest tech giants. However, on February 2, 2021, Amazon announced that founder and CEO Jeff Bezos would be stepping down as CEO and transition to Executive Chair of Amazon’s board in quarter 3 of 2021. Andy Jassy, who is currently the CEO of AWS (Amazon Web Services), will be taking his place as the CEO of Amazon.
Amazon’s Current Share Price
As of June 2021, Amazon (Ticker: AMZN) is trading in between levels of $3200 to $3400. AMZN has largely been in a consolidation phase for most of 2021, with it trading in between major levels that are $2900 as support and $3550 acting as a strong resistance. Rising over 76% in 2020 alone, AMZN has seen a huge bull run in the last year. However, since the beginning of 2021, AMZN has been range bound and consolidating, according to several market analysts. With its market cap nearing almost $2 billion, AMZN is one of the largest tech stocks in the United States.
The primary reason behind the rise in the price of Amazon’s stock is the pandemic, as global lockdowns and social distancing made people transition to online shopping for almost every product and service. With the closure of the traditional retail industry, the only available option left was online shopping.
From essentials to electronics, furniture, clothing, toys, books and so much more, people were heavily dependent on online shopping to fulfill all their demands. This resulted in huge amounts of sales and revenue for Amazon, thus increasing its share price. Where the rest of the market and several stocks were crashing and giving negative returns during the 2020 Covid crash, AMZN was witnessing one of the strongest bull runs it had ever seen.
As seen in the weekly chart below, AMZN was in a consistent uptrend from the beginning of March 2020 up until August 2020. This uptrend resulted in the stock price rising by almost 76%. After August 2020, Amazon’s stock price can be seen range bound and consolidating. The price is neither in an uptrend or downtrend but trapped in between two levels. We expect the stock to begin another trend soon after the consolidation period ends, however, the stock has been respecting the $3000 levels and has been trading above it most of the time. During this time period, AMZN also touched its all-time high levels and is expected to soon touch the $2 billion market capitalization mark.
Reason behind AMZN’s Bull Run in 2020
As of now, AMZN can be seen trading in the range between $3000 to $3500. However, the transition from levels of around $2000 to $3000 was largely achieved during 2020. The pandemic fueled Amazon’s business tremendously and caused increasing levels of sales and revenues. With traditional retail outlets closed due to global lockdowns, online sales and e-commerce witnessed a huge increase in customers and saw high demand for all products. So, let’s go over some of the factors that caused the uptrend in AMZN during 2020.
• The Covid-19 Pandemic
While traditional businesses and companies suffered huge losses during the pandemic and lockdown, online and E-commerce platforms like Amazon saw a huge increase in customer base and increasing demand from all across the globe. With traditional retail shopping outlets closed and inaccessible, online shopping was the best way for consumers to meet their demands. Shopping has shifted to digital platforms and is likely to remain so due to the several benefits and advantages of shopping online. Thus, all of this resulted in a high level of sales and exponentially increasing revenues while contributing to the overall rise in the price of AMZN.
• Amazon’s Digital Media Business
Another reason behind the rise of AMZN is the increase in consumption of digital media during the pandemic and lockdown. With people being indoors all the time, sources of entertainment are low and very few and online entertainment is the only easily accessible option. This is where Amazon’s digital media department saw a huge increase in audience and viewers. Their digital businesses like Amazon Prime Video, Amazon Music, Twitch, and Audible witnessed a huge increase in overall revenue, profit, and subscriptions. This is also one of the factors behind AMZN’s price rise.
Reasons Why Amazon Might Continue to Grow
Being one of the largest tech giants in the United States with dominance over e-commerce and other similar sectors, Amazon is definitely on the rise. With a transitional shift of consumers from retail to online platforms, Amazon will be one of the companies that largely benefit from this trend. “We believe that a fundamental measure of our success will be the shareholder value we create over the long term.
This value will be a direct result of our ability to extend and solidify our current market leadership position.” While this is an excerpt from Amazon’s 1997 shareholder letter, it remains true today. Going forward, Amazon and its stock might continue to resume the uptrend it has been in for quite some time. Here are a few of the reasons why Amazon might continue to grow –
• Major Trend Shift from Retail to Online Platforms
While the pandemic has been one of the primary factors behind consumer transition from retail to online platforms, this trend is most likely going to continue as online shopping offers several benefits and comforts. An Adobe Analytics report found that online holiday shopping during the holiday season (December 2020) increased 32% year over year reaching nearly $200 billion in sales. Consumers spent at least $1 billion online every single day of the holiday shopping season, which was a first. With almost everything being available online, Amazon has quite a bright outlook and endless possibilities in the e-commerce arena.
• Introduction of E-Pharmacy
The global e-pharmacy market size is estimated to reach $177 billion by 2026. With the increasing use of the internet and online shopping, e-pharmacy is an industry that offers several benefits over its retail counterpart. With heavy discounts, free home deliveries, 24/7 services, and much more, e-pharma is a sector that is bound to grow in the coming future. This is where Amazon’s acquisition of “PillPack” in 2018, an online pharmacy, might come into play and help with its overall growth and dominance in the e-pharma sector.
• AWS – Amazon Web Services
Amazon Web Services (AWS) has more than a million active customers and is an industry leader in cloud computing sector. AWS dominates almost one-third of the market share with competitors like Goldman Sachs, Coca-Cola, Johnson & Johnson, Siemens, Shell, Comcast, Airbnb, FINRA, FDA, Kellogg, Unilever, Dow Jones, Expedia, Adobe, Novartis, AirAsia, and GE, among others. Having an extensive global cloud infrastructure, AWS has 69 availability zones with 22 geographic regions around the world and several more plans for the future. AWS contributes significantly to the company’s operating income and has tremendous future potential, which can help in Amazon’s overall growth.
Amazon has barely scratched the surface of its potential. With a positive future outlook and serval growth possibilities in almost every sector that it operates in, AMAZON is definitely on the rise. We hope that this article provided you with valuable information and a clearer picture of Amazon Inc. With all this information, you can make a better and informed decision on whether you should invest in Amazon’s stock or not.
While some may feel that Amazon’s stock is overvalued, the future for this company seems to be quite positive. However, before making any investment decisions, be sure to check the current market conditions and other factors that might affect the value of a stock, as investments in the stock market are subject to market risk. If you liked this article, make sure to visit Jeremy Lefebvre’s YouTube channel “Financial Education” for more such informative content! Happy investing!