The Amazon (NASDAQ:AMZN) share price has been down for some time, and is still around 25% below its high.
I’m a long-term shareholder, and I’ve been using the opportunity over the last year to buy more shares.
What’s great is that the party’s not over yet. As Buffett’s famous saying goes, this is a great time to be ‘greedy when others are fearful’.
Here’s what makes Amazon stand out to me
About 7.5% of my portfolio is taken up by Amazon shares, and I keep adding to the position over time.
My favourite element of being a shareholder is that I use the company every day. Prime delivery, Prime Video and Audible, for example.
Another element that strongly positions Amazon as an investment vehicle is Amazon Web Services (AWS), which has recently harnessed the power of machine learning and AI.
Robotic process automation, for instance, automates high-volume repetitive tasks for companies, provided by Amazon.
AWS takes up approximately 16% of the company’s total revenue as of the third quarter of 2023. I expect the growing AWS segment to help maintain revenue growth over the long term.
Despite such advanced operations, Amazon’s gross margins are currently 15%. That’s worse than 85% of 1,100 companies in the cyclical retail industry.
Revenue, however, has a continued upward trend. The 10-year average annual revenue growth rate is 24%.
Why I think the price is down
The wider macroeconomic environment, including elevated interest rates and high oil prices, could have been a significant factor in a lower share price.
Higher operational costs and lower consumer spending can lead to stock price stagnation and decline.
Earnings per share without non-recurring items in 2022 were also $0.99, which goes against the upward trend of $0.06 in 2015 to $2 in 2021. Thankfully, the trailing 12-month reading is $2.1.
A significant factor in the earnings depreciation was Amazon’s investment in Rivian, whose share price has plummeted 75% since 2020. Amazon reported a net loss of $3.8bn in the first quarter of 2022 due to this.
Where I see the company going from here
I see the company continuing to recover from the recent earnings and share price lapse as is already evident in the $2.8 earnings per share without non-recurring items reported in 2023. The forward estimate is very positive, with $5 in earnings per share without non-recurring items expected in 2025.
Amazon’s strategy for 2024/25 onwards to 2030 includes significant revenue growth by 2025 driven by retail and cloud computing services.
Robotics and drone technology could also see a large uptick in margins as lower cost of service and manufacturing increases operational efficiencies.
I’m betting on Amazon becoming one of the leaders in AI and transforming its delivery and marketplace business to capitalise on the AI era.
The company’s extensive patent portfolio and research and development initiatives are evidence of a proactive approach to continuous advancement. In that sense, I think the growth story for Amazon is far from over.
