There may be some real no-brainer buys in the stock market, but every stock requires a full evaluation before purchasing. Even Amazon (AMZN 0.58%), king of e-commerce, has been dealing with its own struggles lately. But it's also rebounding now with accelerating growth. Let's explore the data and see if Amazon stock is a buy today.
E-commerce is growing again
E-commerce is Amazon's meat and potatoes, so to speak. Amazon began as a bookseller, and within a few years it had acquired several other e-commerce companies and was on its way to becoming the giant it is today. Despite the preponderance of e-commerce companies that took off early in the pandemic, Amazon has maintained an incredible lead over its competitors, with about 38% of the total U.S. e-commerce market share, according to Statista.
It's also taking steps to get even better. It recently restructured from a national to a regional fulfillment network with eight regions. CEO Andy Jassy noted that as e-commerce accelerated early in the pandemic, Amazon had to massively expand to meet rising demand, with its logistics network becoming as big as UPS in about two years.
When demand slowed, Amazon needed to cut jobs and become more efficient without sacrificing quality and speed. Its investments in artificial intelligence (AI) have helped it achieve this despite shrinking its workforce.
Jassy said that as of the 2023 second quarter, there was a 20% decline in "touches" per package and a 19% decline in miles traveled to get orders to customers. Not only does this satisfy customers with faster delivery, but it saves Amazon money with less travel expenses.
According to Statista, e-commerce sales are expected to grow at a compound annual rate of more than 10% through 2028. With its dominance and commitment to improvements, Amazon will largely benefit from these trends.
Cloud computing continues to grow
Amazon Web Services (AWS) also holds the lead by far in its industry of cloud computing. It has 32% of the market share according to Statista, and AWS sales increased 12% year over year in the third quarter.
AWS has been a huge growth driver for Amazon, as well as being responsible for most of its operating income lately. Growth has decelerated as customers have cut their budgets in the inflationary environment, but management said trends are pointing toward a reacceleration.
Although that didn't show up in the third quarter, Jassy said that client are beginning to reduce their cost optimizations. He said that Amazon signed several new deals in September that will only show up in the fourth quarter, but are for more volume than all of the third-quarter volume.
Amazon has introduced several groundbreaking generative AI services for AWS that allow customers to work faster and take care of repetitive tasks so employees can focus on creative work. It's positioning itself to stay in the lead, capture market share, and increase sales.
Overall business is booming
Sales increased 13% year over year in the 2023 third quarter, and after an annual loss last year, it's back to robust profitability. Its operating margin was 7.8% in the third quarter, reaching very close to highs from early in the pandemic.
AMZN Operating Margin (Quarterly) data by YCharts
Amazon has several businesses outside of e-commerce and AWS, including its lucrative advertising business (which was its fastest-growing segment in the third quarter), streaming, and its burgeoning healthcare business that it's working to build. These and others could turn into huge growth drivers over time.
Amazon stock trades at a price-to-earnings ratio of 75, which is expensive, but Amazon stock has long been given a premium valuation for its reliable growth. This isn't out of the ordinary.
Amazon stock may not be the same growth stock it was when it started out, but it's gaining momentum and has many new tricks up its sleeve. It's likely to reward shareholders over the long term, and investors can feel comfortable taking a position now.
