Shares of Amazon.com (AMZN 0.45%) ticked higher over the past week, but the stock remains pressured due to a souring economy, slower consumer spending, and worries the e-commerce giant won't be able to maintain the rate of growth investors have become accustomed to.
I recently expressed doubt Amazon could turn $10,000 into $1 million unless the person was really young and just starting out in the stock market. While that doubt stands, I think the global online retailer remains a good investment, just don't expect it to turn you into a millionaire.
Image source: Amazon.com.
But here are the three reasons I believe Amazon is still a great stock to own even if, by itself, it won't allow you a life of leisure.
1. Amazon retail sales are still healthy
A lot has been made of Amazon's slowing growth rate in the first quarter. More specifically in Q1 (the period ended March 31), net sales grew 7% year over year, retail sales fell 2%, and since retail accounts for 84% of total revenue, that seems worrisome.
However, the decline in retail was a function of Amazon's international operations, which saw a 6.2% drop-off in sales. Despite the drop in international sales the $29 billion generated is nothing to sneeze at, and the North American unit continues chugging along, rising 7.6% from last year. And because North America represents over 70% of retail sales and 60% of the total, Amazon's retail segment still looks healthy.
CFO Brian Olsavsky told analysts, "Customer demand does remain strong", particularly with Prime purchases and engagement with the member loyalty program.
Image source: Amazon.com.
2. Amazon is still very profitable
The $3.8 billion loss Amazon recorded in the first quarter was shocking, especially considering last year it posted an $8.1 billion profit, however, it's not what it seems.
That's because the period included a pre-tax loss of $7.6 billion as part of its non-operating expenses that came from Amazon's stock investment in electric truck manufacturer Rivian Automotive. In the fourth quarter of 2021, it recorded a $12 billion gain on investment.
Rivian shares have tumbled hard from its IPO last year, losing 84% of their value. But that's not an indication of how Amazon is performing. It actually recorded a $3.7 billion operating profit this quarter, albeit all of it deriving from its cloud computing Amazon Web Services (AWS) business.
The operating losses it experienced in its retail business, both domestic and international, were a result of the inflationary environment we're in. Higher overseas shipping costs, rising fuel prices, and increased labor costs all combined to cause the retail business to operate at a loss this quarter.
The company sought to offset some of those expenses by raising the price of its Prime membership from $119 annually to $139. While the increase does push the price to a level where consumers may begin to start questioning its value, there are a lot of benefits attached to the program that consumers won't readily give up.
Beyond free shipping, there are of course movies, picture storage, music, and more. Amazon is also making the service available beyond just its website. It's still a very sticky service.
Image source: Getty Images.
3. Amazon Web Services remains a powerhouse
Unlike retail, AWS continues to surge. Revenue was up 37% year over year to $18.4 billion, and as noted, it remains a deep well of profitability. While Amazon long counted upon AWS to carry the company until retail turned profitable, it's still able to rely upon it for sustainability.
And it's only going to continue growing stronger. Businesses continue to move their operations and data to the cloud, and even with more competitors moving into the space, Amazon maintains a dominant position. According to Statista, its global cloud infrastructure market share totaled 33% in the fourth quarter, exceeding the combined market share of its two biggest competitors, Microsoft's Azure and Alphabet's Google Cloud.
AWS operating income grew at a phenomenal 57% rate in the first quarter.
NASDAQ: AMZN
Key Data Points
The company is still a good bet
Amazon has shown it's not immune from the ravages of the macroeconomic environment and geopolitical landscape, but that it remains a force to be reckoned with.
Wall Street still expects the e-commerce giant to grow earnings at a better than 40% rate annually for the next five years while revenue will incredibly double to $885 billion. Even if it doesn't hit those lofty goals, Amazon.com is a growth stock that investors should feel comfortable buying for the long term.
