Amazon's (AMZN 0.64%) big day is right around the corner. I'm talking about Prime Day, the two-day shopping event that generates billions of dollars in revenue -- and brings in new subscribers to Amazon's Prime service. Amazon holds the event this year on July 12 and 13.
The event may be particularly important for Amazon right now. That's because, if it's successful, it could help Amazon emerge from a difficult first half. Rising inflation and supply chain issues hurt first-quarter earnings. And the stock has dropped 30% so far this year. Now the question is: Should you buy shares of this e-commerce giant before its big moment?
Billions in revenue and profit
First, a bit of background on Amazon's current situation. The company has brought in billions of dollars in revenue and profit over the past few years. And share performance has followed. Over the past five years, for example, Amazon stock advanced more than 130%.
In fact, the shares reached such a high level -- more than $3,600 at their peak -- that the company decided to split its stock. It completed that operation in June. This brought the shares down to about $124. But even that didn't prompt investors to pile into Amazon shares.
Why? Investors are worried about how long the challenges Amazon faces will last. The company said in its latest earnings call that higher costs will continue longer than it originally expected.
Transportation costs are particularly painful. The company said the cost of shipping in international containers has more than doubled from pre-coronavirus days. Amazon also found itself with excess capacity after doubling its fulfillment network over the past two years.
Now, let's talk about Prime Day. This two-day sale on items sold by Amazon and third-party sellers generated more than $11 billion in revenue last year. So it's a key component of Amazon's revenue picture.
Importantly, Prime Day also draws new members to the Amazon Prime program. You can only benefit from Prime Day prices if you're a member.
Raising Prime prices
Prime charges different membership fees in different markets. But in the U.S., it recently raised its price to $14.99 per month from $12.99. Amazon's subscription services revenue has progressively increased. In the first quarter, it advanced 11% to $8.4 billion. And even in today's tough times, Amazon says its Prime membership renewal rates remain strong.
So, if this year's Prime Day is successful, it will increase Amazon's revenue in the current quarter. But it also should lead to more revenue down the road -- that's due to the addition of new members during the event.
A successful event could offer Amazon investors and potential investors a reason to be hopeful. It will show that shoppers still are flocking to Amazon. And they're likely to stick around.
Does this mean you should buy shares of Amazon ahead of Prime Day? I think now is a great time to buy shares of this e-commerce powerhouse. But I also think the days following Prime Day will be great times to buy too. Why? Because Amazon's gains are likely to happen over time.
I don't expect a surge in the share price even if Prime Day revenue numbers are high. It may take a while for investors to come back to Amazon. And it also may take a while for Amazon to beat today's challenges. As the company said, higher costs may be around for some time.
But investors who take the plunge today can benefit from this: Amazon's shares are trading for 55 times trailing-12-month earnings. That's down from more than 80 just a few months ago. So Amazon shares may actually be one of the best Prime Day deals around.