Should You Hold Onto Your Amazon Shares?
Amazon is the largest online retailer globally, and its stock is closely watched by investors. Since its inception, Amazon has grown into a tech giant, valued just below a small number of other major corporations. Operating both in the U.S. and internationally, Amazon sells a wide range of consumer products. Despite usually posting profits just above breakeven, its stock price has steadily climbed, leading some critics to wonder if it’s in an economic bubble. Nevertheless, Amazon continues to innovate, and investors remain confident in its stock. So, should you hold on to your Amazon shares?
Back in Q4 2015, Amazon’s earnings report didn’t quite meet Wall Street’s high expectations. The earnings came in at $1.00 per share, lower than the projected $1.56, due to increased fulfillment and shipping costs. Worldwide revenues grew by 22% to $35.7 billion, or 26% excluding currency exchange effects, though it still missed the consensus estimate of $35.93 billion. The company reported around 304 million active customer accounts in total, and approximately 280 million when excluding those who only placed free orders in the last year, marking a 26% growth from the year before. Paid Prime memberships surged 51% year-over-year, and active Amazon Web Services (AWS) users exceeded 1 million. AWS sales jumped from $1.42 billion in Q4 2014 to $2.405 billion in Q4 2015, showing substantial growth and pointing to its importance for Amazon’s future.
The year 2015 was noteworthy for Amazon, showing profits for three consecutive quarters. Its stock price more than doubled to nearly $700 before settling below $600. This fluctuation has made investors cautious about protecting their gains. There’s concern about the high trailing P/E ratio of 850, which indicates the stock might be overpriced. Even though the future P/E seems better at 105, it remains relatively high compared to a projected 60% annual growth rate over the next five years. Technology companies often defy traditional accounting norms, so it’s crucial to look at Amazon’s fundamental business strengths. Investing in stocks resources can be useful when deciding how to approach investments in companies like Amazon.
Amazon’s primary business in retail has seen its stock dip recently, but the company and the industry are still strong. More offline businesses are taking their products online. Though mega retailers like Wal-Mart and Kmart experienced a decline, Amazon’s sales climbed over $100 billion in 2015. The National Retail Federation noted that more people shopped online than in-store during Black Friday in the U.S. If this trend persists or grows, Amazon stands to gain significantly.
Amazon Prime saw a 51% rise in membership last year and is considered vital to the company’s future. While exact subscriber numbers aren’t publicly shared, estimates suggest nearly 80 million members globally. For $99.99 annually, members receive various benefits, which can boost customer loyalty since regular members tend to spend more. A survey found that 49% of first-year Prime members and 68% of four-year subscribers spend over $800 annually on Amazon. In December 2015 alone, Amazon gained 3 million new Prime members worldwide in just the third week, and it 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, the fourth quarter that Amazon reported the numbers, AWS made $687 million in profit on $2.4 billion in sales. AWS is a leader in cloud computing services, offering computing power, storage, networking, and more to clients. It is projected to be a major revenue source for Amazon, with the industry expected to grow from $49 billion in 2015 to $67 billion by 2017.
Despite missing Q4 earnings expectations, many analysts remain positive about Amazon’s prospects. Firms like JPMorgan, S&P Capital IQ, and Bank of America Merrill Lynch have maintained a favorable outlook.
Given Amazon’s leading role in ecommerce and cloud computing, holding onto Amazon stocks and waiting for the next growth phase could be wise. However, for short-term investors, other market opportunities, such as binary options trading on Amazon’s stock price movements, may offer profitable alternatives regardless of price direction.
