Here's Why Amazon Is Still a Top Stock to Buy Right Now

Amazon (AMZN -1.64%) had a rough third quarter that took many investors and analysts by surprise. In this segment of Backstage Pass, recorded on Dec. 1, Fool contributors Brian Wither and Rachel Warren discuss why the e-commerce and cloud powerhouse is still a rock-solid pick for long-term investors. 

Brian Withers: We're on to Amazon, AMZN. Well, it didn't take long for new CEO Andy Jassy to quote the founder and former CEO, Jeff Bezos. He came out in the earnings release and said, "We've always said that when confronted with the choice between optimizing for short-term profits versus what's best for customers over the long term, we will choose the latter -- and you can see that during every phase of this pandemic."

As you go into the earnings release and the earnings call, [CFO] Brian Olsavsky talks about, we're now reporting results for our seventh quarter since the pandemic began. That puts things in perspective for you. But here's some of the results from the quarter. Prime members have increased their annual purchases and use of prime over the last 20 [months]. We've seen strong growth in advertising.

AWS has seen a re-acceleration of revenue growth. Amazon's Q3 revenue, $110.8 billion, representing a two-year compounding rate of 25% versus a pre-pandemic growth in the low 20s. This is just astounding: "We've grown our global headcount by 628,000 employees in the last 18 months and are recruiting for more, including another 150,000" to support, in the U.S., seasonal demand in the fourth quarter.

There was a recent Wall Street Journal article that noted that Amazon has almost doubled its fulfillment footprint since 2019, adding 450 warehouses, fulfillment centers, sorting centers -- and this is in addition to Amazon Air and its last-mile delivery services. These increases in infrastructure have helped create incredible top-line revenue gains through the pandemic, but it's taken a hit on its operating income and free cash flow. But you know what, I think it's worth it. Amazon's moat is bigger than it ever has been in the past.

Rachel Warren: This is another company that I absolutely love and I also own shares of. [laughs] I think it makes sense that the company faced a few short-term bumps in the road this past quarter, given the ongoing supply chain crisis. And I really love how you looked at the broader picture of its incredible performance over the past several years. Some investors were a bit unnerved by Amazon's recent earnings report.

I personally was surprised by it, although it didn't concern me all that much as a long-term investor. Did Amazon's third-quarter earnings results, as well as its guidance -- for example, it's projecting anywhere from $0 to $3 billion in operating income in the upcoming quarter -- did those results and guidance concern you at all, Brian?

Withers: Yeah. I love that range between $0 and $3 billion. [laughs] That's a big range. [laughs]

Warren: Right. Lots of wiggle room. 

Withers: Yeah. It may be a bit surprising that this particular quarter saw the decrease in operating income, and they're forecasting that into the next quarter. But it's not all that surprising when you take a step back and look at what the company's dealing with. Supply chain issues, labor shortages, massive, massive increase in demand, continued infrastructure investments in the billions and billions of dollars, and you know what? Ever-shortening delivery times.

This reminds me early on in the history of Amazon, almost the other way, when Amazon would post a profit, and [laughs] investors would be very surprised.

Back to the Andy Jassy statement about short-term profits [versus] doing what's best for customers over the long term. I think you're going to continue to see Amazon do that. If you're a shareholder, just be patient.