Amazon.com, Inc. is the biggest online retailer globally, and its stock is closely watched by investors. From humble beginnings, Amazon has grown into a tech giant, surpassed in value only by a few other major corporations. They operate locally and internationally, selling a wide range of goods.
Amazon’s stock is fascinating. Even though their profits are usually just above breakeven, the stock price keeps rising. Some critics think the company might be in an economic bubble ready to burst, yet Amazon continues to thrive and innovate, with investors staying confident. Should you hold on to your Amazon shares?
In the fourth quarter of 2015, Amazon’s earnings report did not meet Wall Street’s high expectations, showing earnings of $1.00 per share compared to the projected $1.56. The shortfall was mainly due to increased fulfillment and shipping costs. Revenue worldwide grew by 22% to $35.7 billion or 26% when ignoring currency exchange impacts, which was still below the expected $35.93 billion. Amazon had around 304 million active customer accounts; excluding those with free orders in the last 12 months, active accounts were approximately 280 million, a 26% increase from the previous year. Paid Prime memberships grew by 51% year-over-year, and Amazon Web Services users exceeded 1 million. In Q4 2015, AWS sales reached $2.405 billion, up from $1.42 billion in Q4 2014, showing impressive growth and importance for Amazon’s future.
2015 was a standout year for Amazon, with profits in three straight quarters, and shares more than doubling to nearly $700 before settling below $600. This volatility has made some investors cautious. The company’s trailing price-earnings ratio of 850 suggests the stock might be overpriced. Even though the future P/E ratio looks better at 105, it’s still high compared to the expected annual growth rate of 60% over the next five years. It’s important to understand the company’s business fundamentals, and stock investing guides can be helpful in making informed decisions about investing in companies like Amazon.
Amazon primarily operates in retail and has seen a drop in stock price, but the company and the retail industry are still strong. More offline businesses are moving their products online, and despite declining sales from major offline retailers like Wal-Mart, Amazon’s sales topped $100 billion in 2015. The National Retail Federation reported that online shoppers outnumbered in-store shoppers during Black Friday in the U.S., a trend that could benefit Amazon if it continues.
Amazon Prime, with its 51% membership growth last year, is vital for the company’s future. Though exact numbers aren’t disclosed, it’s estimated that around 80 million people subscribe to Prime worldwide. For $99.99 annually, members get various free services, boosting customer loyalty as Prime members generally spend more on Amazon. In 2015, 3 million new Prime members joined globally in just one week in December, and the company shipped over 200 million more items for free to Prime members compared to the previous year.
AWS continues to be highly profitable. In Q4 2015, Amazon reported AWS profits of $687 million on sales of $2.4 billion. AWS is a leader in cloud computing services, offering computing power, data storage, and networking to clients. This sector is expected to significantly contribute to Amazon’s revenue, with the industry projected to grow from $49 billion in 2015 to $67 billion in 2017.
Despite lower-than-expected Q4 earnings, many analysts, including those from JPMorgan, S&P Capital IQ, and Bank of America Merrill Lynch, remain optimistic about Amazon’s prospects.
Given Amazon’s dominance in e-commerce and cloud computing, holding onto your Amazon stocks could be a wise move to wait for the next growth cycle. For short-term investors, other opportunities in financial markets, like binary options trading, might offer good returns by trading Amazon stock based on price movements, regardless of direction.