FlexInvest

3 reasons to buy Amazon stocks

FlexAcademy

Categories

buy amazon stocks

It’s been 30 years since Amazon’s groundbreaking initial public offering. Today, with a market cap of $2 trillion, Amazon has seen an incredible 160,000% return for its shareholders since going public in 1997. Despite its remarkable growth, analysts maintain a positive outlook to buy Amazon stocks, citing its expanding market opportunities, increasing profitability, and burgeoning advertising sector.

Amazon isn’t just a company – it’s a household name, making waves in every corner of the globe. From consumer products to online ads and subscription services, Amazon does it all through physical and online stores. 

There was a rough patch a couple of years ago filled with slow growth and disappointing profit margins. Now, Amazon seems to be having a comeback, becoming one of the fastest-growing mega-cap stocks globally. 

In the past year alone, Amazon raked in a whopping $590.74 billion in revenue, more than double its 2019 earnings. With such a promising future, it’s no wonder investors are eyeing at these reasons to buy Amazon stocks as a top pick for July 2024.

Amazon to grow across multiple fronts

Amazon is not just holding its ground in e-commerce; it’s making strides in several growth areas like cloud computing, digital advertising, and online streaming. 

In the first quarter of 2024, its Online Store segment saw revenues climb 7% year-over-year to $54.7 billion, making up 38% of total sales.

Meanwhile, Amazon Web Services (AWS) is a powerhouse in its own right, contributing 17% to Amazon’s revenue and growing by 17% year-over-year in Q1. 

Not to be outdone, Amazon’s Advertising Services segment, though currently representing 8% of total sales, saw a robust 24% year-over-year revenue increase in Q1. 

With these scenarios, analysts consider it a good idea to buy Amazon stocks due to the company’s ability to take advantage of the following circumstances:

  • The global e-commerce market is projected to skyrocket from $18.98 trillion in 2022 to $47.73 trillion by 2030. 
  • Reports forecast the public cloud market to surge from $631.8 billion in 2023 to $1.8 trillion by 2029.
  • Global digital ad spending is anticipated to jump from $550 billion in 2023 to $1.367 trillion by 2033, growing annually at 9.6%.

With each of its business segments poised for steady growth throughout the next decade, Amazon stands out as a compelling choice for investors seeking long-term potential in the tech sector.

Amazon’s margins are on the rise

Just like many other companies, Amazon has been hard at slashing costs to navigate through uncertain economic times. Since Q4 of 2022, it has streamlined operations by cutting over 27,000 jobs, which has significantly bolstered its profit margins. 

Moreover, during the past 18 months, Amazon has diligently reduced its technology and infrastructure expenses along with sales and marketing costs, all of which have positively impacted its financial health.

In the last year alone, Amazon has reported a free cash flow of $50.15 billion, a stark contrast from a $3.31 billion outflow in the previous year. Looking ahead, the company anticipates further improvements in profit margins for Q2 of 2024, albeit at a more gradual pace.

For Q2, Amazon forecasts an operating income ranging between $10 billion and $14 billion, up from $7.7 billion in the same period last year. Revenue is expected to land between $144 billion and $149 billion, reflecting a solid year-over-year growth of 7% to 11%.

While Amazon traditionally prioritized growth over profitability, it has now entered a phase of robust sales and earnings growth driven by economies of scale, a strong competitive position, and visionary leadership. 

Ad sales: Amazon’s secret weapon

Amazon is also dominating the digital advertising landscape, ranking third behind Alphabet and Meta Platforms. Despite slower consumer spending, Amazon’s ad business thrives on capturing customer purchase intent, making it a top choice for corporate marketing budgets.

What’s fueling Amazon’s ad success? The answer lies in sponsored products, which have seen significant improvements in relevance and measurement for advertisers. 

In just three years, Amazon’s ad revenue has skyrocketed from $6.4 billion in Q1 2021 to an impressive $11.8 billion in Q1 2024—far outpacing competitors like Alphabet and Meta. Notably, this segment boasts high profit margins and is expected to play a pivotal role in driving revenue and profitability well into the next decade.

Looking ahead, Amazon anticipates continued growth in sponsored products and is expanding into new areas such as Prime Video ads.

As Amazon continues to innovate and expand its advertising offerings, it solidifies its position not only as a retail giant but also as a formidable force in the digital advertising world. 

Should you buy Amazon stocks?

Analysts predict Amazon will achieve adjusted earnings per share of $4.54, a substantial increase from $2.90 per share in 2023. This growth has positioned AMZN stock at a forward price-to-earnings ratio of 44x, notably higher than the sector median of 15x. However, Amazon’s rapid expansion justifies this premium valuation.

Remarkably, all 42 analysts covering Amazon stock have rated it a Buy, signaling a Strong Buy consensus among experts. The average price target for AMZN is set at $222.45, suggesting an exciting 11.5% potential upside from its current trading levels.

As Amazon continues to demonstrate robust growth and investor confidence remains strong, the outlook to buy Amazon stocks looks promising in the eyes of Wall Street analysts.

Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.

Related articles

Market Insights

buy tesla stocks

Market Insights

September 9, 2024

Invest your way with FlexInvest

Join us and be part of an investment community where everyone enjoys a simple and safe way to invest.