Amazon has revolutionized e-commerce over the past 30 years. Can it keep winning?
From humble beginnings as an online bookseller to one of the largest companies in the world, Amazon (NASDAQ:AMZN) stock has come a long way in just 30 years.
Amazon pretty much invented e-commerce when it launched on July 5, 1994, and now it is by far the world leader in this sector, in addition to being the king of cloud computing.
Amazon stock has made many investors a lot of money over that time period. The stock has split four times over 30 years, most recently in 2022, when it underwent a massive 20-for-one stock split when a single share was trading at more than $2,400.
Since then, it has climbed from around $120 to approximately $200 per share as of July 8, and has returned 31% year-to-date. And since the beginning of June, Amazon stock has risen more than 12%.
So, with this impressive recent performance in mind, is now the right time to buy Amazon stock?
Big investments in e-commerce and AWS
Amazon has had a strong year thus far, reporting a 13% increase in net sales in Q1 to $143 billion. Amazon Web Services revenue also jumped 17% year-over-year, while net income nearly tripled to $10.4 billion, or 98 cents per share, in the quarter.
It also saw its operating cash flow rise 82% year-over-year to $99 billion, with $50 billion in free cash flow. This will allow Amazon to fund investments in AI and other growth areas.
One of its big recent initiatives will see Amazon spend $100 billion over the next decade on new data centers to support its AWS business. The new centers call for a massive investment in AI infrastructure to maintain its lead in cloud computing amid increasing competition from Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG).
On the e-commerce front, Amazon is looking to build a discount online store to challenge Temu, the low-price merchant from China.
In recent years, Amazon moved to a regional model for shipping, with more warehouses in more locations, to make shipping faster. However, reports say the new discount store would use the Temu model of shipping directly from one location, with a longer shipping time but much lower prices on typically unbranded items.
What’s next?
Next week, on July 16 and 17, Amazon will hold its annual Prime Day event are for Amazon Prime customers, and that could potentially give the stock a jolt. Consumer confidence has been fairly robust of late, rising in May after three straight months of declines, so that should bode well for sales.
Amazon anticipates a strong second quarter, as its guidance called for net sales to fall between $144 billion and $149 billion — up 1% to 4% from Q1 and 7% to 11% year-over-year.
Also, operating income is targeted at $10 billion to $14, compared to $10 billion in Q1 and $7.7 billion in the second quarter of 2023.
Should you buy?
There have been very few occasions over the past 30 years when Amazon was not a good buy. That remains true today.
The firm is making the right investments to secure its continued dominance, and it stands to get a boost as inflation drops and the Federal Reserve starts to lower interest rates. Those factors will put more money in consumers’ pockets and make businesses more prone to invest — both of which will help Amazon.
The valuation is a bit high with a price-to-earnings ratio of 56, but it is down from 62 after the first quarter and 79 at the start of the year. The forward P/E is around 42. That bears watching, but earnings remain strong, and it is a leader in both of its businesses.
Amazon has a median price target of $220 per share, which is a solid 10% higher than the current price. While the P/E is a bit high, there really aren’t too many stocks that are better to own over the long term than Amazon.
