A complete guide to Amazon stock

For many investors, Amazon is the quintessential growth stock – with a staggering return over the past several years. Take a look at Amazon’s share price performance, plus how to buy and sell Amazon shares.

Amazon

Amazon: the basics

Amazon trades on the NASDAQ stock exchange under the stock ticker NASDAQ:AMZN. It is one of the so-called 'FAAMG' stocks – the big five US tech firms of Facebook, Apple, Amazon, Microsoft and Google (which now trades as Alphabet).

Amazon has been a constituent of the S&P 500 since 2005 and is one of the largest companies on the Nasdaq 100 index. Despite its immense size and value, it has never been a constituent of the Dow Jones. We'll come on to why that's the case later.

Amazon's share price sees a lot of volatility throughout the day. The key factors affecting its price are its earnings releases, news about the company and the world's economic health.

You can trade Amazon shares with a City Index account:

Amazon share price performance

Amazon has been one of the world's best-known growth stocks for many years. Its share price was $130 back in 2010, compared to over $3700 today. That's an impressive return of more than 2700%.

Amazon share price history

The S&P 500, meanwhile, grew by around 300% in the same period.

COVID-19 saw many companies struggle, but the boom in online shopping just caused Amazon's growth to explode even more. It entered 2020 with a share price of $1870 and by the end of the year had surpassed $3200.

Learn more about Amazon's share price history.

It is Amazon’s outsized $3700+ stock price that keeps it off the Dow Jones. The Dow Jones weights its companies according to their share price, not market cap. If Amazon joined, its weighting would be some 900 times greater than the current leading Dow Jones stock, UnitedHealth.

Why are investors interested in Amazon stock?

The chief reason why investors pay so much attention to Amazon is its compelling growth over the last decade and more. The firm, started by Jeff Bezos back in the 90s, has become almost unrecognisable from its humble beginnings, and investors want to take their position on where it might head next.

Amazon’s remarkable bull run must end at some point – no company can grow forever. But the corporation has survived the dotcom bubble, 2008 crash, resignation of Jeff Bezos and more. So what will end the current rally?

How to buy and sell Amazon shares

To buy and sell Amazon shares with City Index, follow these five steps:

  1. Open a live account
  2. Search ‘Amazon’ in the platform
  3. Choose your Amazon market
  4. Decide whether you want to go long or short
  5. Set your trade size, and open your position

With City Index, you’ll be trading Amazon via share CFDs. These are derivative instruments, which means unlike investing in Amazon, you never own the underlying asset. So you can short the stock if you think it will fall in price.

Learn more about CFD trading.

How does Amazon make money?

Amazon makes money from three primary areas: retail, subscriptions and Amazon Web Services (AWS). Retail covers eCommerce sales from the website, including Fire and Echo devices. AWS provides cloud infrastructure to businesses, while subscriptions mainly covers Amazon Prime.

Retail

The retail division still dominates in terms of net revenue, earning over $230 billion in the US alone in FY2020. Amazon’s international retail division isn’t nearly as successful, with less than half the net sales.

Retail may bring in huge revenue, but its profit margins are relatively small. In the US, that $230 billion revenue translated to a profit of $8.7 billion. For the three years up to 2020, Amazon’s international retail arm wasn’t profitable at all.

AWS

It falls to AWS, then, to prop up the profitability side of Amazon’s business. AWS is growing fast, delivering profits of $13.5 billion in 2020 from revenue of $45 billion – a profit increase of almost 50% on the year before.

In terms of market share, AWS is a juggernaut. It controls around a third of the total global cloud market.

Amazon Prime

Amazon Prime, the subscriptions division within the company, is also growing rapidly. However, it remains dwarfed by both retail and AWS. It generated around $25 billion in revenue in 2020.

The corporation has also bought several subsidiaries over the years: including Audible, Goodreads, IMDb, Zappos and Twitch.

Is Amazon profitable?

Amazon is a profitable business, and has been for a few years now. In Q1 2021, the company announced an operating income of $8.9 billion, more than double what it achieved the previous year.

Amazon did struggle to turn a profit for a long time – in 2016, the company made headlines for finally posting profitable earnings four times in a row – but it wasn’t necessarily due to an issue with profitability. Instead, Jeff Bezos had long prioritised growth over income.

What that means in practice is that Amazon has reinvested its revenue back into the business, spending heavily on advertising and researching new product lines. Some of these, such as Echo, Amazon Prime and AWS have delivered success.

Others, not so much. The Fire Phone, for example, spectacularly failed to set the world alight.

Overall though, the strategy appears to be working. AWS has been the backbone of Amazon’s explosive growth in recent years, far outweighing the losses on other failed ventures.

Amazon market cap: how much is Amazon worth?

Amazon is worth over $1.8 trillion, making it one of the most valuable companies on the planet. It surpassed $1 trillion in value back in 2018, and looks set to hit the $2 trillion level too – joining the likes of Apple and Microsoft in the process.

Only six listed companies have reached $1 trillion in value:

  1. Apple
  2. Microsoft
  3. Amazon
  4. Saudi Aramco
  5. Alphabet (Google)
  6. Facebook

Market capitalisation tells you a company’s total value on the stock market. To calculate it, you multiply the current share price by the number of available shares.

Who owns Amazon?

As a listed company, Amazon is owned by its shareholders. If you own a single Amazon share, you are a part owner of the business. However, some individuals own a lot more stock than others:

  • Jeff Bezos, Amazon’s founder, may not be the CEO any more – but he still owns the largest stake in the company. His 55.5 million shares give him 11.1% ownership
  • Advisor Group, an institutional brokerage company, owns a 7.1% stake in the business
  • Vanguard Group, the fund provider, owns 6.6% of Amazon’s outstanding shares
  • Andrew Jassy is the current CEO and former head of AWS. He owns just shy of 100,000 shares, or a 0.02% stake in the company

Board of directors of Amazon

Since Jeff Bezos stepped down as CEO and became Executive Chairman, Amazon’s board of directors has looked like this:

Jeff Bezos

Executive Chair

Andy Jassy

President and CEO

Keith B. Alexander

Director

Rosalind Brewer

Director

Jamie Gorelick

Director

Daniel P. Huttenlocher

Director

Judy McGrath

Director

Indra Nooyi

Director

Jon Rubinstein

Director

Thomas O. Ryder

Director

Patty Stonesifer

Director

Wendell P. Weeks

Director

What you should know before trading Amazon stock

1.      Don’t expect a dividend

Amazon may have shifted its focus toward profitability in recent years, but it has shown no sign of paying any of that income to shareholders in the form of a dividend. It has the free cash flow to do so, but chooses to reinvest in growth instead.

With CFDs, you don’t receive dividends anyway – so this doesn’t make a huge difference.

2.      AWS is key

The first figure most investors look for in an Amazon earnings report is revenue from Amazon Web Services. As the company’s main source of steady sales (retail revenues vary according to season), and main source of profit margin, solid growth in AWS tends to keep investors happy.

AWS is has double the market share of its closest rival, Microsoft’s Azure.

3.      You can short Amazon

You don’t have to buy Amazon. If you believe that an upcoming earnings release will disappoint, or that a bear market is on the horizon, you can open a short position instead.

To short Amazon with CFDs, you sell at the outset instead of buying. This gives you a position that earns a profit if it falls in price, and a loss if it rises.

You can practise shorting with a free City Index demo account.



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