Amazon has been one of the most successful companies in recent years, with a market capitalization of over $1.151 trillion in 2023. The company has revolutionized e-commerce, cloud computing, and digital streaming. Many investors are wondering if Amazon shares are a buy at the current price level. In this article, we will take a deep dive into Amazon’s financials and operations to answer this question for beginners seeking to buy Amazon shares.
Overview of Amazon Company
Amazon is a leading global technology company that was created in 1994 by Jeff Bezos. The company is primarily known for its e-commerce platform, but it has also made significant inroads in other industries. Amazon Web Services (AWS) is a cloud computing platform that is widely used by businesses worldwide. Amazon also offers digital streaming services through Amazon Prime Video and has also entered the healthcare industry with its acquisition of PillPack.
Amazon’s revenue has been steadily increasing over the years, with a compound annual growth rate (CAGR) of 32.1% from 2016 to 2021.
In 2020, the company recorded an outstanding revenue of $386 billion, up from $280.5 billion in 2019.
This positive trend continued upto 2023, with the company’s revenue for the past twelve months, ending in March, rising to $524.90 billion, marking a 9.88% increase YoY.
Amazon’s current price-to-earnings (P/E) ratio is 69.23 which is much higher than the industry average of 27.4. The company’s forward P/E ratio is 72.90 which suggests that investors are expecting strong growth in the future. Amazon’s price-to-sales (P/S) ratio is currently low at 2.153, which is below the industry average of 3.8.
Amazon’s growth prospects are strong, particularly in the e-commerce and cloud computing industries. E-commerce has seen a surge in demand due to the pandemic, and Amazon has been one of the biggest beneficiaries. The company’s dominance in the e-commerce industry is likely to continue, as it has a vast distribution network and a loyal customer base. AWS is also expected to continue growing, as more businesses move their operations to the cloud.
More so, Amazon’s acquisition of MGM Studios has further highlighted the company’s ambition to expand its presence in the entertainment industry. This acquisition will enable Amazon to add more content to its streaming platform and potentially increase its subscriber base.
Overall, while Amazon shares may appear expensive in terms of traditional valuation metrics like the P/E ratio, the company’s strong growth prospects and dominant position in multiple industries justify its premium valuation. Amazon’s focus on innovation and customer-centric approach has allowed it to maintain a competitive edge, and its significant investments in research and development are likely to lead to further growth and expansion in the future.
Risks and Challenges
One of the main risks for Amazon is increased competition. The e-commerce industry is highly competitive, with companies like Walmart and Target investing heavily in their online platforms. In addition, AWS faces competition from other cloud computing providers like Microsoft Azure and Google Cloud.
Amazon also faces regulatory risks, particularly in the areas of antitrust and worker treatment. The company has come under scrutiny from government agencies and lawmakers for its market dominance and treatment of workers, which could result in increased regulation and potential legal liabilities. Investors should carefully monitor any developments in these areas.
Amazon shares are a buy for long-term investors who are willing to hold through any short-term volatility. The company’s strong financial position, growth prospects, and innovative culture make it a compelling investment opportunity, despite the risks and challenges it faces.