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18/10/2021

Investing in Amazon Shares

Amazon is a well-known e-commerce company specialising in the distribution of consumer products. It was floated on the NASQAD in 1997 with a capitalisation of $438 million. The company continues to grow year after year.

In early 2020, Amazon reached a $1 trillion in market cap on Wall Street, joining Apple, Alphabet (Google) and Microsoft. In 21 years, Amazon has become the third largest of the “Big Five” and a leader in its field.

Listed on the Nasdaq, Amazon shares are of interest to many traders and individual investors. The company sells internationally and continues to diversify its activity.

Company Overview

Amazon is a global e-commerce company founded in July 1994 by Jeff Bezos, its current Chairman and CEO. The American company specialises in the sale of electronic and computer products (laptops, games consoles, cameras, etc.), cultural goods (books, video games, CDs, DVDs, etc.), beauty products, furniture and clothing.

Its offer, products and services continue to expand. It furthermore founded Amazon Prime, Amazon Launchpad, Amazon Second Chance and Amazon Business.

In 2003, the company founded Amazon MarketPlace, a platform that enables professionals and individuals to sell their own products.

Amazon launched Kindle, an electronic reading device that allows users to download e-books and magazines, in 2007 alongside Amazon Music Unlimited, an online music distribution platform.

The company offers video streaming services through Amazon Instant Video. In 2013, it launched the "Prime Air" project, a drone delivery system. Recently, it entered the banking sector. It has also started producing content in partnership with Netflix.

There are over 250 million products listed on Amazon's websites. More than 10,000 French small and medium-sized enterprises (SMEs) are active on the various platforms. The company remains one of the best long-term stock market investments.

Amazon, a fast-growing company

Today, Amazon is the largest Internet retailer in the world. With over one million employees, Jezz Bezos' company remains the world's largest employer in its field.

At the time of its entry into the financial market, Amazon’s market capitalisation was 438 million dollars, but by July 2020 this had risen to over 1,500 billion dollars. At the end of 2020, its quarterly revenue was USD 125.6 billion, an increase of 44% year-on-year (compared to USD 87.4 billion in Q4 2019).

This brings its revenue for the year 2020 to USD 386.1 billion. From USD 9 billion in 2019 to USD 12.7 billion in 2020, the revenue of AWS, Amazon's cloud service, which offers digital cloud services, is up 28%.

The company's net income was $7.222 billion, up 120% from $3.268 billion in 2019. Its operating cash flow increased by 72% during 2020. It increases from USD 38.5 billion to USD 66.1 billion.

Amazon's partners and competitors

To develop its products and services, the Seattle-based company has initiated partnerships with companies such as  the car manufacturer Ford, with whom it will design a device to control cars remotely. In 2014, Amazon signed a deal with Samsung in order to deliver online content via 4K TVs.

In 2015, Amazon partnered with Nitendo and Spanish company Dia. In 2019, the company signed a contract with Monoprix of the Groupe Casino and with the Volkswagen Group.

As far as competitors are concerned, Amazon has a near-monopoly position in the e-commerce sector. However, a few companies are attempting to compete, such as Barnes & Nobles Inc, eBay Inc, Hastings Entertainment Inc, Apple Inc, Best Buy Co Inc, Books-A-Million Inc and Fnac Darty.

Amazon stock: listing and quotation

Amazon went public on 14 May 1997, three years after its founding. At the time of the IPO, its stock was worth $18. The next day, the stock was listed on the Nasdaq. Taking into account the three stock splits since then, this price represents $1.50 per share. The company struggled in its early years, posting a $30 million loss.

Between 1998 and 1999, there were three stock splits. Since the 2000s, the online retail giant has enjoyed strong growth thanks to an innovative e-commerce business model, such as Amazon Marketplace partnerships, the digitisation of certain products and simplified purchasing on the site. In 2018, it reached a $1 trillion market cap on Wall Street.

In October 2019, Amazon became the 3rd largest company in the world in terms of market capitalisation, with $882 billion as of 30 October 2019, behind Microsoft ($1,099 billion) and Apple ($1,103 billion). In 2020, its profit increased 163 times. The company is one of the tech “Big Five”, with more than USD 1,500 billion in capitalization.

Today, the company's valuation is estimated at USD 1,700 billion. In the years since its founding, the company has kept its growth capacity at a maximum by not paying dividends to its shareholders. Those who bought Amazon shares in January 2001 at a price of $17 have seen their capital multiplied by more than 100 today.

Factors influencing Amazon's share price

Amazon stock is one of the most sought-after investments for investors today. The factors behind its success include the company's status as an international e-commerce leader, wide range of products, Kindle brand and growth opportunities for the coming years,  alongside its loyalty tool par excellence, Amazon Prime. 

However, the company is facing problems related to patent infringement, which are worrying its shareholders. It is what’s more faced with some major threats, particularly regarding the collection of taxes on goods sold. At the same time, the company is facing increasing competition.

Nevertheless, Amazon's share price has progressed over the past few years. Before taking the plunge, investors should carefully analyse the advantages and disadvantages of the stock and seek professional advice. 

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