How to Invest in Amazon Stock?

Amazon is the world's second-largest retailer today, only behind Walmart. The company's meteoric rise has seen it become one of the biggest commerce giants ever in terms of revenue. In 2022, it recorded over $330 billion in total revenue. Analysts expect the company to become the outright largest retailer in the world by 2024.

Amazon's growth has seen its stock price become one of the most attractive options for investors, with more people exploring diverse ways to tap into the company's growth. This post covers the important things about Amazon.

• Amazon is the second largest online retailer.

• The company also offers a range of web, digital entertainment, and cloud services.

• The stock will remain one of the best performers due to the company's versatility.

Amazon started out as a bookselling company on July 5, 1994. Founder Jeff Bezos started the company in his garage, but it's fair to say that the company has come a long way since then. Over the last three decades, the company has pivoted multiple times, snagging up other smaller businesses to transform into the behemoth it has now become.

Two key years in Amazon's history were 2005 when the company launched the Amazon Prime service, and 2006 when it launched the first selection of Amazon Web Services (AWS) offerings. Since then, the company has made giant strides in e-commerce, cloud computing, artificial intelligence, and digital streaming.

On the e-commerce front, the company's product range and inventory cover everything from clothing and electronics to furniture and pet supplies. The company now has data centers and fulfillment centers around the world.

Amazon listed its stock in May 1997 at $18 per share. Since then, the company has carried out several stock splits to bring the share price down to levels that will be more affordable for the average investor.

The first split was a 2-for-1 split on June 2, 1998. The second split was a 3-for-1 split on January 5, 1999. The third split was another 2-for-1 split on September 1, 1999. After two decades of no split, the company launched a 20-for-1 split on June 2, 2022.

With these splits, it means that one Amazon share bought on the listing day has now turned into 240 shares. The listing price of $18 per share in 1997 will amount to around $0.075 per share today. This doesn't affect the investment negatively.

Increased Demand

A stock split gives potential investors on the sidelines due to a high stock price an opportunity to buy shares. Therefore, a stock split often leads to increase in demand for the share which usually leads to a rise in the stock price. 

Higher Liquidity

Following the above perception that stock split leads to increased demand, this would mean that existing shareholders have more buyers in the market looking to purchase their shares resulting in a possible more frequent exchanging of ownership driving up liquidity.

Amazon has been one of the strongest-performing tech stocks since listing more than 26 years ago. Today, the stock trades at $129.96 per share.

▼AMZN Stock Price & Chart

Amazon Stock Price  (Source: Mitrade) 

Amazon stock reached an all-time high price of $186.12 per share on July 08, 2021, off the back of the COVID-19 pandemic. During this period, there was a rise in e-commerce traffic as people had to change the way they lived to adapt to the lockdown restrictions in place.

The lifting of COVID-19 lockdowns, the performance of the company's other investments, inflation, and other external factors have all combined to lower the stock price by more than 40% from the highs.

Over the last year, the average price of the stock is 109.78.

The Company's Performance Tracks Economic Growth

Over the years, amazon's business performance has shown some cyclical tendencies. It grows when the economy is in expansion and contracts when there's a recession.

During periods of economic growth, people are more likely to ramp up consumption and purchases boosting Amazon's e-commerce side of things. More businesses will be happier to complete the transition to AWS cloud services. When the economy is weak, the reverse is the case.

The Rise of AI Can Drive Growth

Amazon has shown over the years that it's always able to reinvent itself and take advantage of new opportunities. Currently, AI is all the rage, and Amazon's economic strength and huge market share put them at a significant advantage over other players in the crowded space.

They have already set the ball rolling through projects like Bedrock, and they have plans to implement a chatbot in the online marketplace to help users find products faster.

The Company's Advertising Business Is a Major Revenue Driver

Due to Amazon's sheer size in the e-commerce space, it's no surprise that it has become a top player in the digital advertising world. Sellers in the marketplace can pay for more visibility to drive revenue.

Amazon's return from its advertising revenue is around 10% of its total revenue. But if the growth rate is anything to go by, then advertising will become an important source of growth in the near term.

No stock is without downside risks. Some possible risk factors to consider for Amazon Stock are:

Macro-economic factors. Like other stocks, Amazon's operations may be affected by macro-economic factors around the world. Any weakness in the economy will naturally result in a decrease in the consumption of goods and services.

Risks associated with globalization. While Amazon has a huge presence in the US, globalization of its operations will bring about higher risk exposures to global political uncertainty, cross-border tariffs, domestic labor laws uncertainty etc.

Cybersecurity and natural disasters. Branching out operations to other parts of the world exposes Amazon to natural disasters prevalent to the specific country. Not forgetting the inherent risk of Cybersecurity threats given Amazon e e-commerce business model.

Domestic Competition. By providing its services beyond the US, Amazon will encounter intense competition from domestic competitors especially more prominent incumbents who may try to monopolize the market through first mover advantage or aggressive pricing.