Is It Too Late to Buy Amazon Stock?

Amazon (AMZN -3.49%) has been the king of e-commerce for many years. The industry has been changing in unpredictable ways recently, fueled by unforeseen events. It took a huge leap forward at the beginning of the pandemic, and as its growth evens out, is its high growth finished? And how will that affect Amazon stock?

Amazon's e-commerce is not a growth machine

According to Statista, Amazon leads any other e-commerce operators by a wide margin. As of June 2022, it was responsible for 38% of all U.S. e-commerce sales, followed by Walmart with 6.3%. Part of that is due to Amazon's marketplace, its third-party platform, which it started in 2000. Marketplace accounted for 60% of its total gross merchandise volume in 2021, which amounts to about 25% of total e-commerce sales in the U.S.

But after skyrocketing sales at the height of the pandemic, growth is slowing down. This is due to a confluence of factors such as facing tough comparisons from high growth last year, moving past a flood of stimulus money, and inflation. North America product sales increased 10% year over year in the second quarter.

The pace has slowed down as compared with pre-pandemic levels, although even in the second quarter, it was still building on last year's growth. Second-quarter 2021 total sales increased 27% year over year, and in 2022 that dropped to 7%. Management is guiding for 15% growth at the midpoint in the third quarter, which is still underperformance from pre-pandemic levels. For example, in the 2019 third and fourth quarters, sales increased year over year 24% and 21%, respectively.

The global e-commerce market is expected to continue growing steadily, from $5.5 trillion in 2022 to $7.4 trillion in 2025. If Amazon keeps its share of the total e-commerce market, theoretically its sales from that segment would increase organically at the rate of overall e-commerce growth. For now, double-digit e-commerce sales are still quite a feat. However, this isn't the growth engine for the company that it once was. If this was Amazon's sole business, it wouldn't look like a very inspiring stock.

Amazon is beefing up in other areas

Despite e-commerce being the company's core business (at least for now), it's only one piece of the puzzle.

Another important piece is Amazon Web Services (AWS), the cloud computing segment. It remains a huge growth engine, with consistent gains (33% year over year in the second quarter) as well as profitability. It accounted for 16% of total sales in the second quarter with $19.7 billion, and was the only segment with positive operating income ($5.7 billion). The other two reported segments, North America and international, both posted an operating loss.

AWS continues to roll out new features and services as well as launch in new areas, and it keeps picking up new clients and expanding deals with current ones. It's well positioned to pump out higher sales for many years.

Then there's everything else Amazon is doing. Although it announced the closure of all of its 68 physical Book, 4-star, and pop-up stores, it's making more progress in physical grocery sales, opening up 12 new Amazon Fresh stores in the second quarter. This is a key to future dominance. The company is well equipped to make what you might call carefully crafted gambles, and trying out new businesses without fear of failure is how it thrives and dominates when it's successful. When it's not, it closes them down and moves on.

Amazon continues to make acquisitions that pad its top line and expand its dominance in new industries. Recently it acquired One Medical for $3.9 billion, one of its most expensive acquisitions ever. Several weeks later, it also announced that it's closing down Amazon Care, implying that it's making some groundbreaking changes in how it operates its healthcare segment. It certainly looks like Amazon is getting ready to make a big push here, and that could disrupt the entire healthcare industry beyond the digital and telehealth areas that are already reimagining healthcare.