Amazon (AMZN 0.25%) completed a 20-to-1 stock split on June 6, bringing the share price to around $100 at the time of this writing. While this modification does not decrease Amazon’s trillion dollar market capitalization, it does make the company more accessible to investors who might not have thousands to invest in the stock market.
Let’s go over the advantages and drawbacks of investing in this stock now.
First-quarter earnings weren’t as bad as they seem
Amazon is a global online marketplace that has evolved into a one-stop shop for electronics, groceries, and other items through its brick-and-mortar affiliate Whole Foods. Amazon has been under pressure from inflation, which drives up the cost of doing business while potentially reducing consumer purchasing power. Lower than-expected first-quarter results have prompted many investors to question whether it’s time to jump ship.
Amazon recorded a net loss of $3.8 billion in the first quarter, down from a profit of $8.1 billion in the same period last year. While this appears to be a severe decline, it isn’t as bad as it appears at first glance.
Amazon’s bottom line is partially driven by a pre-tax loss of $7.6 billion from its investment in electric automobile company Rivian Automotive, which has dropped 66% from its IPO price of $78 per share. Investors should be aware that Amazon acquired Rivian before its IPO for $11.8 billion in noncash gain in the fourth quarter of 2021. So while the deficit appears worrisome, it has nothing to do with Amazon’s main operations.
Pivoting to new growth drivers
Amazon’s North American e-commerce business grew revenue by 8% to $69.2 billion in the first quarter of 2018, according to market research firm eMarketer. However, due to inflation and supply chain difficulties, the flagship company posted a $1.57 billion operating loss. It’s impossible to say when these headwinds will end, but Amazon’s huge size and diversified model should help it recover in the long run.
Amazon has become a major player in the cloud computing market with the help of its AWS subsidiary. Revenue in this sector grew 37% year over year to $18.4 billion, and operating income increased 57% to $6.5 billion.
Amazon’s secret weapon isn’t merely cloud computing. Amazon has surpassed Google and Meta Platforms’ Facebook to become the third-largest digital advertising business, according to Business Insider. The advertising industry expanded by 23% in the first quarter, bringing the total to $7.9 billion. And Amazon’s massive user base of over 300 million shopping-motivated active users should enable it to continue its rapid expansion.
Amazon is also expanding into direct-to-consumer streaming with its $8.5 billion acquisition of the MGM film studio. While investors shouldn’t expect Amazon to become the next Netflix, MGM’s intellectual property might help boost Amazon Prime and enhance consumer satisfaction. In the first quarter, subscription revenues for Amazon reached $8.4 billion, up 11% from the year before.
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