As the buzz surrounding Amazon's (AMZN 0.28%) stock split begins to subside, investors are getting back to the real work of evaluating the company as a potential stock pick. Amazon has been a top stock to own over time, gaining more than 1,000% over the past 10 years.
There are many reasons to be confident that it can continue to gain in the next 10 years, but there are also reasons to be wary about the company's current state of affairs. Here are three reasons to buy and one reason to sell.
1. Three letters: AWS
Amazon Web Services (AWS) is the company's cloud computing segment, and it's continuing to post robust growth and earnings. In 2022's first quarter, AWS sales increased by 37%, and operating income rose 55% to $6.2 billion.
Amazon's other segments posted operating losses in the first quarter, and AWS accounted for all of the company's $3.7 billion in operating income.
Image source: Getty Images.
It created and expanded many partnerships throughout the quarter, including bringing on board Boeing and providing new capabilities for the National Hockey League. It's also developing new technology such as Local Zones, which bring cloud computing services closer to the end user. Improved technology makes it more competitive in the face of increasing competition from the likes of Microsoft's Azure and other companies.
2. It's still the leader in e-commerce
Net product sales fell 1.7% year over year in the first quarter to $56.5 billion, but that's still way ahead of any other peer. Even Walmart, whose $573 billion in fiscal 2022 sales outdoes any competitor -- including second-place Amazon -- by a long shot, doesn't come close to Amazon's online product sales. Walmart's e-commerce sales in the 2023 fiscal first quarter (ended April 30) were $15.7 billion, far below Amazon's product sales.
According to eMarketer, Amazon is projected to account for about 40% of all online shopping in 2022 with the next 14 digital retailers combined making up about 30% of online shopping. Trends are shifting now that people have returned to physical shopping, but shopping online has become a more mainstream part of life over the past two years.
NASDAQ: AMZN
Key Data Points
3. Its innovation pipeline is strong
AWS grew out of the company's commitment to innovation, and there's so much more to Amazon than its retail website. It acquired MGM studios last year and is developing its streaming platform. It's also building out its healthcare services business, and it's producing "just walk out" of the store technology in a software-as-a-service model.
Amazon's ability to jump into new businesses means its opportunities are almost endless. And its backup support from retail and AWS gives it leverage to enter new terrain with less risk, so it can build on what's successful and scrap what's not. For example, it's continuing to open new grocery stores, but it's closing all of its non-grocery physical stores.
Why not to buy
While Amazon has bright prospects, the current situation is certainly a challenge. The company posted a net loss in the first quarter, its first quarterly loss in seven years. It's dealing with higher costs related to supply-chain issues and inflation, and it's winding down some of the infrastructure it quickly created to manage skyrocketing demand during the pandemic. Last week, its longtime head of the worldwide consumer business, including Prime, announced he's stepping down.
Taking a position in a company that's in flux always comes with some amount of risk, even when it's a dominant player like Amazon. And perhaps investors can find safer investing ideas for the time being instead of tying up their dollars in stocks that aren't likely to be big gainers right now.
I see Amazon as a strong long-term bet, however, and I don't recommend investing based on short-term factors. So while it's important to note the issues Amazon now faces and to incorporate them into you investing decisions, don't let them sway you from long-term goals.
