As one of the world‘s largest and most successful companies, many investors are interested in buying Amazon (NASDAQ: AMZN) stock. But with a share price over $100, you may wonder—how exactly can I invest in Amazon?
This extensive 2500+ word guide covers different investing options, from online brokerages to fractional shares to index funds. I’ll explain the pros and cons of each method, as well as key factors to consider before buying Amazon stock. My goal is to empower you to make informed decisions aligned with your financial goals.
A Brief Background on the Amazon Business Model
Before jumping into the different ways to invest, let‘s review some key facts about Amazon‘s businesses:
Overview
- Founded in 1994 by Jeff Bezos in Seattle as an online bookseller
- Now a dominant player in ecommerce, cloud computing, streaming entertainment and more
- Employs over 1.5 million people globally
- Market cap of over $900 billion makes it one of most valuable public companies
- Stock price up over 5,000% since 1997 IPO
Revenue Streams
Amazon generates cash from several business segments:
- Online stores – Over 50% of sales from electronics, apparel, toys, household items sold directly to consumers online
- Third-party seller services – Takes commissions on sales from millions of merchants listing products through Amazon marketplace
- Amazon Web Services (AWS) – Leading provider of on-demand cloud computing platforms and APIs to businesses, software vendors, government agencies
- Advertising – Sells ads across Amazon platform to marketers seeking to promote products
- Subscription services – Income from Prime membership fees, content streaming, audiobooks, ebooks and more
| Revenue Source | TTM Revenue (in billions) |
|---|---|
| Online Stores | $317B |
| Third-Party Seller Services | $138B |
| AWS | $80B |
| Advertising | $38B |
| Subscription Services | $9B |
This diversified income gives Amazon multiple growth levers as digital transformation revolutionizes commerce and computing globally.
Next let‘s analyze key financial metrics to evaluate the company‘s performance.
Assessing Amazon‘s Financial Health
In addition to monitoring revenue trajectories across business units, investors scrutinize profitability, cash flows, and valuation ratios. Here are benchmarks over the last 3 years:
| Key Ratios | 2020 | 2021 | 2022 TTM |
|---|---|---|---|
| Revenue Growth YoY | 38% | 22% | 14% |
| Net Income Margin | 6.3% | 7.1% | 2.4% |
| Return on Equity (ROE) | 28% | 33% | 12% |
| EPS Growth YoY | 76% | 46% | -27% |
| Operating Cash Flow Growth | 69% | 9% | 1.2% |
| P/E Ratio | 92 | 60 | 74 |
Breaking this down:
- Steady double-digit revenue growth demonstrates strong execution scaling Amazon‘s reach
- Profit margin expansion in 2021 driven by cloud computing strength
- 2022 margins and ROE compressed due to fulfillment/shipping cost spikes
- Investments into capital expenditures also compressed 2022 cash generation
- Valuation remains elevated with P/E ratio over 70
Industry analysts project improved cost efficiency in coming years as supply chain kinks resolve post-pandemic. But intensifying competition clouds volume and margin outlooks for the core ecommerce business.
Analyzing Threats and Growth Drivers
As the world‘s fourth most valuable public company, Amazon dominates multiple sectors. But many risks on the horizon could alter the trajectory ahead.
Ecommerce competition heating up as retailers enhance omnichannel capabilities. Walmart, Target and shoe/apparel brands eroding Amazon‘s market share. International expansion also faces local player challenges.
However, over 50% of external online shopping traffic still starts at Amazon. So the platform remains essential for merchants seeking visibility, even with higher seller fees and fulfillment costs.
Cloud computing Arm Amazon Web Services (AWS) posted 39% growth last quarter. Though Microsoft and Google cloud initiatives pose threats long-term.
New business ventures in pharmaceuticals, grocery, healthcare, and self-driving vehicles demonstrate Amazon‘s continuous appetite for expansion into diverse sectors. While most initiatives operate at losses funding growth, allowed by the lucrative cash cow AWS, new markets offer huge TAM opportunities.
Regulatory bodies also sharpen their gaze on Big Tech‘s immense influence. But experts believe antitrust action has greater likelihood against Apple and Meta in the short term. Still, political rhetoric and legislative proposals introduce uncertainty.
In summary, Amazon‘s leading market positions and aggressive investments instill confidence. But maturing cash cows and fierce competition raise risks of compressed margins over the mid-term horizon.
Evaluating Expert Projections
Industry analysts provide regular research reports assessing business performance and stock value drivers.
As of January 2023, the average 12-month price target across 45 analysts covering Amazon is $143 implying 72% upside versus current levels according to CNN Business.
Morgan Stanley‘s Brian Nowak calls Amazon his "top pick" with cloud strength overcoming ecommerce margin pressure. He sets a bull case target of $175.
Meanwhile, Goldman Sachs‘ Eric Sheridan downgraded Amazon to Neutral arguing rising costs combined with moderating consumer demand will limit near-term upside. His target stays $130.
So expert projections vary widely – from significant undervaluation to fading growth prospects limiting gains. Individual investors must parse opposing viewpoints to determine believable outlooks for themselves.
Technical Analysis – Using Charts to Time Entry and Exit Points
Fundamental analysis explores business metrics and growth trends. Technical analysis studies pricing charts and volumes seeking to identify support, resistance, momentum markers and trading signals.
Pulling up a 10-year weekly chart, Amazon remains in a consistent uptrend with higher highs and higher lows. However the recent double top pattern at the $188 level projects as next resistance barrier.
In 2022, RSI downtrend along with bearish MACD crossovers signaled overbought conditions preceding major drawdowns to the $100 support zone. This also marked a nearly 30% correction from highs.
With fresh MACD crossover and strengthening RSI, the new uptrend suggests gathering bullish momentum. So technically shares appear attractive for accumulation between $100 to $125 ahead of the next leg higher targeting $150+ if historical patterns resume.
Always utilize prudent risk management with stop losses if attempting to capitalize on high probability chart patterns.
Investment Strategy Considerations
While technical and fundamentals provide projections, personal investment goals should drive decision-making. Evaluating how Amazon stock aligns with your situation involves several considerations.
Financial Objectives
Does owning Amazon match your investment strategy and asset allocation targets? Those focused on immediate income would prefer mature blue chips with steady dividends.
Conversely, adding a high growth innovator like Amazon serves investors targeting long-term compounding through capital appreciation rather than dividends (which Amazon pays none anyway).
Time Horizon
If managing money needed in the short term for a house or tuition, Amazon‘s volatility poses challenges. Potential drawdowns exceeding 20% even in bull years puts assets at risk near liquidation timeframes.
But longer term investors can ride out swings and capture full profit potential on multi-year holdings. So time horizon greatly impacts risk scenarios.
Risk Appetite
Owning individual stocks lacks diversification, intensifying risk compared to funds and ETFs. Make an honest personal assessment of ability to endureDeclines exceeding 20% happen even in bull market years. Less volatility tolerant investors should maintain stop losses or hedge via options.
Research Capabilities
Doing proper due diligence on long term holdings requires keeping current on industry trends, growth initiatives, leadership changes, and earnings trajectory. Are you ready to devote several hours regularly analyzing your stock picks?
If not, robo investors or advisors may suit those wanting professionals to handle research. But if you find analyzing 10-Ks stimulating, individual stocks present an engaging opportunity.
Avenues for Investing in Amazon Stock
Okay, so you‘ve decided Amazon aligns with your investing strategy and risk scenarios. Now let‘s discuss avenues for gaining exposure suitable for all portfolio sizes and experience levels.
Online Brokerages
Online brokerages like Fidelity, Charles Schwab and Interactive Brokers offer direct stock purchases through desktop, web, and mobile trading platforms.
Benefits include:
- Commission-free trading becoming industry standard
- Ability to set stop losses and price alerts
- Access education and research to make decisions
- Account security via encryption and 2 factor authentication
I recommend Webull, SoFi, Robinhood, Merrill Edge and Etrade based on ease of use, minimal account minimums, fractional share capabilities, and $0 commissions.
Most brokers now enable buying slices of shares based on dollar amounts – extending direct investment capability to those without the cash to afford full shares.
For example, if lacking $118 to buy an entire Amazon share, just enter $50 as trade amount. The broker platform then purchases fractional shares accordingly.
Robo Advisors
Robo platforms like Betterment, Wealthfront and M1 Finance offer automated portfolio management using algorithms instead of human advisors.
Simply answer questions about financial goals, time horizon and risk tolerance. The robo advisor then constructs and monitors a personalized portfolio using low cost ETFs and funds covering major assets like stocks, bonds and real estate.
So you gain exposure to 500+ stocks including Amazon for a single annual advisory fee usually around 0.25%. Easy sign up and passive maintenance makes robo investing suitable for beginners through hands off investors.
Leading robo advisor Betterment allocates on average 3% to 4% of managed portfolios towards Amazon stock via holdings in Vanguard and BlackRock ETFs according to the company.
Specific robo holdings percentage towards Amazon vary based on client allocation preferences. But review holdings data to compare robos if desiring maximum exposure.
Financial Advisors
For high net worth investors, human financial advisors offer personalized guidance on buying Amazon stock directly or within customized portfolios.
Unlike robos, they can answer questions, explain research, and adjust recommendations in alignment with changing objectives. Top full service firms like Morgan Stanley and UBS even supply proprietary research on Amazon.
However, advisor fees typically run over 1% annually for accounts under $1 million. Compare regional and independent local firms when assets don‘t require giant investment houses.
And ensure the advisor‘s specialty aligns with your needs. Some focus on retirement planning rather than stock picking. Always vet credentials and client reviews first via free consultations.
Direct Stock Purchase Plans
Investors planning recurring dollar cost averaging into Amazon long-term can enroll in the company‘s Direct Stock Purchase Plan.
By authorizing electronic debits from your bank account, full or fractional shares are purchased twice monthly with no trading commissions. However account fees, custodial costs, and forced holding periods before share sales still apply.
Compare terms against leading discount brokers using fractional shares before committing to the company plan.
Index Funds and ETFs
Gaining exposure to Amazon via index mutual funds or ETFs like those tracking the S&P 500 provides inherent diversification from over 500 constituents.
As mentioned earlier, mega cap Amazon represents nearly 2% of the full index. But other sectors allocate much higher towards Amazon and fellow tech leaders.
For example, the Technology Select Sector SPDR ETF(XLK) places over 12% portfolio weight towards Amazon – it‘s second largest holding. State Street‘s Communication Services (XLC) and Fidelity‘s Consumer Discretionary (FDIS) sector funds also allocate heavily to Amazon.
| Ticker | Name | Amazon Portfolio Weight |
|---|---|---|
| XLK | Technology Select Sector SPDR Fund | 12.4% |
| XLC | Communication Services Select Sector SPDR Fund | 20.3% |
| VGT | Vanguard Information Technology ETF | 11.2% |
| FDIS | Fidelity® MSCI Consumer Discretionary Index ETF | 19.7% |
Researching sector and industry focused funds containing Amazon provides another low cost hands off approach to gain exposure while maintaining diversification.
Final Thoughts
I hope this comprehensive 2500+ word guide outlined helpful insights and analysis for investors exploring Amazon stock ownership.
Owning this dominant industry leader could greatly benefit a portfolio over long time horizons. Consider dollar cost averaging small amounts using the fractional share approaches above.
But make sure to align personal financial objectives, risk tolerance and time horizon with any investment—and diversity across other stocks, sectors and assets.
Use the investing avenues above to start profiting from Amazon‘s trailblazing success story today!
