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Amazon.com, Inc. (AMZN) Buy or Sell Stock Guide
Are you looking for the analysis of Amazon.com, Inc. (AMZN) stock? Are you wondering what the bulls and the bears say about it?
If so, you came to the right place. In this stock guide, we will share with you 19 reasons to buy and 8 reasons to sell AMZN stock. You’ll get a perspective on what the bulls and the bears say about it.
The analysis below may be also helpful to you if you have any of the following questions about AMZN stock:
- Is AMZN a buy or a sell?
- Should I sell or hold AMZN stock today?
- Is AMZN a good buy / investment?
- What are AMZN analyst opinions, recommendations and ratings?
Let’s start with the bull case. Here are the reasons to buy AMZN stock:
1. Amazon dominates North American online retail with an estimated gross merchandise value of over $300 billion.
2. With more than half of the world's Internet users coming from developing markets, Amazon has promising international growth opportunities, including Europe, Japan, and India. Amazon has been introducing several new products for international markets, and expanding Prime to strengthen its foothold in international markets. It is also building fulfillment centers to cater to the increase in demand.
3. Kindle products and complementary devices like Fire TV, Dash, Echo, and Alexa represent intriguing customer acquisition and retention tools that capitalize on the shift to digital, while simultaneously promoting Prime memberships and various Amazon Web Services capabilities.
4. Amazon's current focus is on building video content, primarily for Prime subscribers because the growth prospects in that market are considerable. Product selection, a superior user experience, bargains and customer feedback have helped the company build a strong position for itself in the fast-growing ecommerce market.
5. Amazon keeps its retail business very hard to beat on price, choice, and convenience with the help of a solid loyalty system represented by the Prime program. The company continues to push advantages exclusively to Prime members, thus encouraging them to spend more on Amazon.
6. Amazon’s strategy of gradually merging online and offline retail looks promising. It will not only reshape the retail landscape but also help it fend off competition. It has added online and offline features to its bookstores and is going the same way with innovations such as drive-in-grocery delivery service (AmazonFresh Pickup - order groceries online and collect them from a store nearby) and “cashier-less” stores (Amazon Go – the company’s first brick-and mortar grocery store).
7. Amazon is the leading provider of cloud infrastructure as a service to enterprise customers. The Amazon Web Services (AWS) business is growing at over 40% year over year. Even more encouraging is the fact that AWS generates much stronger margins than the traditional retail business, which should remain a positive for the company’s profitability as AWS continues to grow in the mix.
8. AWS is gaining momentum with customers including Adobe, GE Oil & Gas, Kellogg’s, Airbnb, Pinterest, Spotify, Tata Motors, Unilever, McDonalds, BMW, British Gas, Capital One, US Department of State and USDA Food and Nutrition Service.
9. Alexa powered Echo devices are going great guns and help the Company sell products and services. Artificial intelligence (AI) driven Alexa has already been integrated into a host of everyday devices for the digital home, which has converted the nascent smart home market into a potential area of growth in a very short time. Alexa is equipped with tens of thousands of skills and can connect to any stream of business.
10. Alexa is an important method for Amazon to collect householder information, since it is used to listen to commands and store everything that it hears in the cloud. Amazon is racing to build an ecosystem around Alexa; it has taken an early lead over Google's smart assistant and Microsoft's Cortana.
11. Amazon is gradually choosing the buy (acquire) option over build, which ensures that the company generates revenues right away without wasting any time in building its own infrastructure. In July 2017, the Company completed the acquisition of a Dubai-based ecommerce giant, Souq.com. The deal will help Amazon establish a presence in countries such as Egypt, Saudi Arabia, and the UAE.
12. In August 2017, Amazon closed the acquisition of natural and organic foods supermarket, Whole Food for $13.7 Billion. Through this acquisition, the company is targeting a considerably large customer base that still prefers to shop at physical stores. This is Amazon’s way of tackling mounting competition and slow growth in the ecommerce space.
13. Amazon is increasingly focused on growing markets such gaming and e-sports. It acquired Body Labs, a startup that develops 3D body shapes and motion for various industries. It also acquired GameSparks to spruce up its gaming capabilities.
14. Amazon has accelerated its push in the logistics business. The company is reportedly working on a new delivery service called “Seller Flex”, where it itself will pick up packages from third-party merchant warehouses and deliver them to customers, a function currently handled by its long-time partners United Parcel Service and FedEx. The company is increasing its own control and reducing reliance on courier partners and third-party merchants in the process of delivering products.
15. Amazon generates strong cash flows. Despite the seasonality in its business and the resultant fluctuation in gross margins, operating margins do not move around that much. This is because of a relatively flexible operating cost structure, which allows the Company to curtail technology and content expenses in particular when margins are impacted by discounts and promotions (e.g., during the holiday season).
16. AMZN quarterly revenue growth was 23.70%, higher than the industry and sector average revenue growth (3.24% and 2.78%, respectively). See AMZN revenue growth chart.
17. AMZN PEG ratio (P/E adjusted for growth) is 1.71, and it’s low compared to its industry peers’ PEG ratios. See AMZN PEG chart.
18. AMZN average analyst rating is Strong Buy. See AMZN analyst rating chart.
19. AMZN average analyst price target ($2194.62) is above its current price ($1771.65). See AMZN price target chart.
Now that you understand the bull case, let’s look at the reasons to sell AMZN stock (i.e., the bear case):
1. Amazon's margin expansion trajectory is likely to be uneven at times, given its global logistics and content investments, new sources of competition, and physical store aspirations.
2. International expansion brings unique challenges such as local e-commerce regulations, infrastructure investments, and incumbent competition in some markets.
3. Certain Amazon Web Services products will face competition from well-capitalized peers like Microsoft and Google, potentially exposing it to more aggressive price competition and longer-term margin pressures.
4. The competition in online retail is heating up. Traditional retailers have always provided the strongest competition and a number of them are running e-commerce sites as well. Additionally, the increased use of the Internet in both developed and developing economies is attracting other players into the space.
5. Prime’s saturation in the U.S. market is apparent, because Amazon has very high penetration rates in the country. This led management to announce a tiered pricing system, wherein users can try out a monthly subscription if they are unsure about the program or don’t want to pay upfront for the whole year.
6. Most retail businesses tend to be seasonal and Amazon’s is no different. The company’s revenues get a huge boost from the holiday season each year (over 34%). With such a huge contribution from the fourth quarter, there is an obvious drop-off in the first quarter. The dependence on consumer spending makes the business lumpy, increasing the possibility of expectations going awry.
7. AMZN forward P/E ratio is 65.86, and it’s high compared to its industry peers’ P/E ratios. See AMZN forward P/E ratio chart.
8. AMZN Price/Book ratio is 15.69, and it’s high compared to its industry peers’ P/B ratios. See AMZN forward Price/Book ratio chart.
Now let's look at the key statistics for AMZN:
|Average Price Target / Upside||$2,194.62 / 25.06%|
|Average Analyst Rating||Strong Buy|
|Number of Employees||647,500|
|Forward P/E Ratio||64.37|
|YoY Quarterly Revenue Growth||23.7%|
What are your thoughts on AMZN?
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