Key takeaways
- Investors are concerned that Amazon stock might still be overvalued, and the downward trend of the company’s stock price suggests that is the prevailing opinion.
- Yesterday morning Amazon announced a "new 48-hour event” in October that “gives Prime members exclusive early access to holiday deals," that will include items from many popular brands including Peloton and New Balance.
- The battle between Amazon and Walmart is particularly interesting; Walmart, having long held the status of the largest physical retailer in the U.S., is making strides online.
The intense popularity of Amazon as an online marketplace has translated into major gains in its stock price over the years. After hitting the stock market with a share price of $18 in 1997, the company’s all-time stock high was $175.35 in late 2021. Since then, the stock price has dropped to its current level of $115.15 as of September 26, 2022 and there have been 3 stock splits.
The precipitous drop leaves us wondering whether or not Amazon stock has peaked. Let’s explore the financials.
Amazon trends
For online shoppers, Amazon is a ubiquitous presence. As the company rose to dominate online sales, becoming the go-to marketplace for everything from books to groceries, it has also expanded into other markets. For example, it now offers cloud services, advertising opportunities, its own entertainment studio and streaming service, and more to add to its bottom line.
The company has cemented its position as a goliath that’s unlikely to leave the world anytime soon. Although the company has staying power in a competitive market, its large size could hamper the growth of its stock. After all, many companies struggle to make eye-popping gains after hitting such a formidable size.
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What are the numbers saying about Amazon’s stock position? Here’s a closer look.
Stock price rrends
Over the years, Amazon has put up some impressive numbers. If you are curious about its growth over time, here’s how things have shaken out as of May 25, 2022:
- 30,716% stock price growth over 20 years
- 1,826% stock price growth over 10 years
- 345% stock price growth over 5 years
- 122% stock price growth over 3 years
But what about the most recent stock price trends? After its $175.35 peak in November 2021, the stock price has dropped down to $115.15 as of September 26, 2022. Of course, stock prices are inherently volatile to major market factors, and there have been plenty of those between November 2021 and September 2022.
Still, the drop in Amazon stock prices has some investors understandably concerned.
Amazon web services growth
Amazon Web Services (AWS) has long served as the financial powerhouse of the company. Even when other areas of the business aren’t as profitable as they seem, AWS picks up the slack.
Although AWS is still very profitable, it’s not growing as fast as it once was. In the second quarter of 2022, the AWS portion of Amazon grew by 33%, down from the 40% year-over-year growth achieved in the fourth quarter of 2021.
If the growth of AWS continues to slow, this could lead to lower overall profit for the company. Of course, Amazon has other revenue streams. But AWS represents a large, profitable line of business.
Consumer preferences
As e-commerce developed, consumers flocked to Amazon. For a while, it seemed like Amazon would forever be the favorite online store of many shoppers. But a 2019 survey conducted by First Insight found that this may no longer be the case.
According to the survey, 55% of shoppers answered they would rather shop at Walmart than Amazon. If that holds true in the coming years, that could spell trouble.
Income and sales
Sales are the lifeblood of any company. Without money coming in, it’s challenging to move the needle toward growth.
Operating income was $3.3 billion in the second quarter of 2022, down from $7.7 billion in the second quarter of 2021. However, net sales increased to $121.2 billion in the second quarter of this year. That represents a 7% increase over $113.1 billion in the second quarter of 2021.
In the second quarter earnings report, CEO Andy Jassy wrote, “Despite continued inflationary pressures in fuel, energy and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network.” He also mentioned growing revenue as the result of more Prime perks like free food deliveries and exclusive access to the NFL’s Thursday Night Football games.
All in all, the report seemed optimistic about the company’s future. But it’s impossible to determine whether or not the company’s stock will continue to grow at the fast clip that Amazon investors have gotten used to.
Top competitors
Although Amazon is the largest online marketplace for consumer goods, it’s not the only place where people can shop online. In fact, many shoppers are comfortable making their online purchases elsewhere.
A few of the top competitors include Walmart, Target and countless other online stores driven by more desirable branding and service. The battle between Amazon and Walmart is particularly interesting. Walmart has long held the status of the largest physical retailer in the U.S. With thousands of physical stores, Walmart seems to be using its footprint as a launchpad for quick deliveries to compete with the online giant. Conversely, Amazon is using its Whole Foods locations, as well as relationships with other (mostly struggling) retailers to enable more convenient returns.
Both Walmart and Amazon seem to have bright futures, and it will be fascinating to see how the companies will face off as they start to encroach on one another’s territory and value proposition.
The bottom line
When investing in big tech companies, it’s critical to stay up to date on the financial trends. Otherwise, you could end up losing money. Even major companies get hit quickly when the markets get rattled.
But the reality is that not every investor has the time or inclination to monitor stock trends up to the minute and read up on the financial details behind the scenes. If you don’t want to stay on top of the minutia, then it’s important to harness the power of technology to handle that critical work for you.
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