Source: PaxForex Premium Analytics Portal, Fundamental Insight
While the stock market may present seemingly obvious opportunities, a comprehensive evaluation is essential before making any investment, even in the case of industry giant Amazon. Despite being a powerhouse in e-commerce, Amazon has faced challenges recently. However, signs of a resurgence are evident, accompanied by accelerated growth. Let's delve into the data to assess whether Amazon stock is a favorable investment at present.
- Amazon's Core Strength: E-commerce
E-commerce serves as Amazon's cornerstone. Originating as a humble bookseller, the company swiftly expanded its reach by acquiring various e-commerce entities, evolving into the colossal entity it is today. Despite the emergence of numerous e-commerce rivals during the early stages of the pandemic, Amazon has maintained a commanding lead, boasting approximately 38% of the total US e-commerce market share, according to Statista.
- Strategic Enhancements in Progress
Recognizing the need for continued evolution, Amazon has embarked on strategic improvements. A recent shift from a national to a regional fulfillment network, comprising eight regions, reflects the company's commitment to staying ahead. CEO Andy Jassy highlighted the necessity for substantial expansion during the early pandemic-induced e-commerce surge, transforming Amazon's logistics network into a behemoth comparable to UPS in just two years.
Adapting to changing demand dynamics, Amazon underwent a phase of job cuts to enhance efficiency without compromising quality and speed. Noteworthy investments in artificial intelligence (AI) played a pivotal role in achieving this balance, even as the workforce was streamlined.
Jassy reported a remarkable 20% reduction in "touches" per package and a 19% decrease in miles traveled for order deliveries by the second quarter of 2023. This not only translates to expedited deliveries, satisfying customer expectations, but also results in cost savings for Amazon through reduced travel expenses.
- Capitalizing on Projected E-commerce Growth
Statista forecasts a compound annual growth rate of over 10% in e-commerce sales through 2028. With its dominant market position and unwavering commitment to ongoing enhancements, Amazon is poised to reap substantial benefits from these upward trends. As the e-commerce landscape continues to evolve, Amazon's strategic adaptations and technological investments position it as a formidable player well-equipped to navigate and capitalize on the projected growth in the coming years.
he Ever-Growing Horizon of Cloud Computing
In the realm of cloud computing, Amazon Web Services (AWS) stands as an unrivaled leader, commanding an impressive 32% market share, as reported by Statista. The third quarter witnessed a notable 12% year-over-year increase in AWS sales, solidifying its pivotal role in Amazon's growth trajectory.
- AWS: A Driving Force for Amazon's Growth
Undeniably, AWS has emerged as a significant growth catalyst for Amazon, contributing substantially to its operating income. While the pace of growth experienced a slowdown amid customer budget constraints in an inflationary environment, management remains optimistic about trends indicating a forthcoming reacceleration.
Despite a nuanced portrayal in the third quarter, Amazon CEO Andy Jassy revealed that clients are initiating a reduction in cost optimizations. Several new deals inked in September, set to materialize in the fourth quarter, promise to eclipse the third-quarter volume, affirming positive momentum.
- Pioneering Generative AI Services
Amazon's commitment to innovation extends to AWS, where it has introduced groundbreaking generative AI services. These services empower customers to enhance efficiency, expediting repetitive tasks and allowing employees to channel their focus towards creative endeavors. By continually pushing the boundaries of technological advancement, Amazon positions itself not only to retain its lead in the cloud computing arena but also to expand market share and bolster sales.
- Holistic Business Growth
Amazon's third-quarter performance reflects an overall robust business landscape, with a notable 13% year-over-year increase in sales. After a dip in profitability last year, the company has rebounded impressively, boasting an operating margin of 7.8% in the third quarter, approaching highs witnessed in the early stages of the pandemic.
- Diversified Business Ventures
Beyond its e-commerce and AWS domains, Amazon has diversified its portfolio to include a lucrative advertising business, streaming services, and a burgeoning healthcare venture. The advertising segment, in particular, emerged as the fastest-growing in the third quarter, showcasing the company's multifaceted growth avenues.
- Balancing Act: Valuation and Growth
Trading at a price-to-earnings ratio of 75, Amazon stock commands a premium valuation. This is in line with its historical trend, where the stock has consistently been awarded a premium for its unwavering growth. While Amazon may have evolved from its initial growth trajectory, it remains dynamic, with numerous strategic initiatives poised to unfold. Investors looking towards the long term can find confidence in Amazon's potential to reward shareholders amid its evolving growth narrative.
As long as the price is above 130.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 143.94
- Take Profit 1: 150.00
- Take Profit 2: 160.00
Alternative scenario:
If the level of 130.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 130.00
- Take Profit 1: 123.00
- Take Profit 2: 115.00
