The furious, sustained rally that Amazon.com (NASDAQ 🙂 has grown by around 427% over the past five years is losing its steam and many investors are taking a second look at the technology that handles half of all e-commerce trading. in the US
Trading at $ 1,786.40 at the end of yesterday, Amazon's shares have fallen by around 11% in the past year. These losses are only the second after the worst performing Netflix (NASDAQ 🙂 in the group of top five technology stocks known as FAANG.
To support a bear bear argument, some analysts cite Amazon's slower sales growth, rising costs of doing business, and intensive regulatory oversight that could force the company to change its current business model.
In this uncertain environment, the first major short-term challenge for Amazon (NASDAQ 🙂 is controlling spending and improving margins. The second quarter of the online store showed that there is no quick solution in this area.
The costs of the company in connection with the one-day delivery service resulted in higher costs and reduced efficiency in the second quarter. The investment needed to ship merchandises in one day will put pressure on earnings for the remainder of the year, Chief Financial Officer Brian Olsavsky told analysts during a conference call.
That situation is not encouraging for short-term investors who are attracted to this stock due to the growing profitability of the company. From an operating profit margin of 7.4% in the first quarter, that figure dropped to 4.9% in the second quarter. The margin of the third quarter, based on the midpoint of the Amazon forecast, implies a margin of less than 4%.
Analysts expected on average an operating profit margin of nearly 6% for the second quarter and even higher for the third quarter,
Amazon & # 39; s long-standing profession in contact
But despite these issues, we continue to like Amazon (NASDAQ 🙂 stocks for long-term investors. Investing in technology stocks is not without risk, especially in this late phase of the bull cycle, which shows some signs of spikes. But for long-term investors, Amazon is still one of the best bets between fast-growing technology stocks.
First, the faster one-day shipment attracts more shoppers to Amazon (NASDAQ :), which means more growth for the company. Amazon reported a sales increase of nearly 20% in the second quarter compared to a year ago, and the centerpiece of the company's guidelines suggests comparable growth for the three months ending in September.
If Amazon (NASDAQ 🙂 succeeds in increasing its sales, we believe investors should not worry about the costs and a small profit on the margins.
Another reason that makes us comfortable recommending Amazon (NASDAQ 🙂 shares is the company's broad economic moat, a term coined by & # 39; the world's most successful value investor, Warren Buffett, for define companies that have a sustainable competitive advantage. Amazon certainly fits well in this category. It is clear that retailing will inevitably shift to the internet, which now accounts for around 15% of US retailing excluding restaurants.
In addition to the company's broad competitive edge in e-commerce, Chief Executive Officer Jeff Bezos is also opening up several new growth areas beyond the low-margin activity of online goods sales.
Amazon (NASDAQ 🙂 manages the largest cloud platform in the world and serves large corporate clients. Amazon Web Services, known as AWS, grew by 37%. Amazon & # 39; s digital advertising company, another high-margin company, is growing three-fold. Backed by these highly profitable units, Amazon has been able to disrupt many industries and continue to do so for a long time.
Bottom Line
Due to Amazon's leading position in many of the areas where it operates, its stock is one of the safest bets in the technology sector. Amazon's e-commerce activities continue to show a flourishing growth path and AWS and digital advertising earnings momentum remains robust. These strengths make his shares a good candidate to buy on weakness.
