Is it too late to buy Amazon stock?


Amazon (AMZN -0.24%) has been the king of e-commerce for many years. The industry has recently evolved in unpredictable ways, fueled by unforeseen events. It took a huge leap forward at the start of the pandemic, and as its growth subsides, is its strong growth over? And how will this affect Amazon’s stock?

Amazon’s e-commerce is not a growth machine

According to Statista, Amazon leads all other e-commerce operators by a wide margin. In June 2022, it was responsible for 38% of all e-commerce sales in the United States, followed by walmart with 6.3%. Part of this is due to Amazon Marketplace, its third-party platform, which it launched in 2000. The Marketplace accounted for 60% of its total gross merchandise volume in 2021, representing approximately 25% of total e-commerce sales in the United States.

But after sales exploded at the height of the pandemic, growth is slowing. This is due to a confluence of factors such as the difficult comparisons with last year’s strong growth, the passing of a flood of stimulus funds and inflation. North American product sales increased 10% year-over-year in the second quarter.

The pace slowed from pre-pandemic levels, though even in the second quarter it was still building on last year’s growth. Total second-quarter 2021 sales were up 27% year-over-year, and in 2022 they were down 7%. Management expects growth of 15% midway through the third quarter, which is still an underperformance compared to pre-pandemic levels. For example, in the third and fourth quarters of 2019, sales grew year-over-year by 24% and 21%, respectively.

The global e-commerce market is expected to continue growing steadily, growing from $5.5 trillion in 2022 to $7.4 trillion in 2025. If Amazon maintains its share of the total e-commerce market, theoretically its sales in this segment would grow organically at the rate of overall e-commerce growth. For now, double-digit e-commerce sales are still a feat. However, it is not the growth engine of the business that it once was. If this were Amazon’s only business, it wouldn’t look like a very inspiring stock.

Amazon is strengthening in other areas

Although e-commerce is the company’s core business (at least for now), it’s only one piece of the puzzle.

Another important element is Amazon Web Services (AWS), the cloud computing segment. It remains a huge growth driver, with consistent gains (33% year-over-year in Q2) as well as profitability. It accounted for 16% of total sales in the second quarter with $19.7 billion and was the only segment to have a positive operating result ($5.7 billion). The other two reported segments, North America and International, both recorded an operating loss.

AWS continues to roll out new features and services as well as launch into new areas, and it continues to recruit new customers and expand offerings with current customers. It is well positioned to generate higher sales for many years to come.

Then there’s everything Amazon does. Although it announced the closure of all of its 68 physical book, 4-star and pop-up stores, it is making further progress in physical grocery sales, opening 12 new Amazon Fresh stores in the second quarter. This is the key to future dominance. The company is well equipped to make what might be called carefully crafted bets, and trying new ventures without fear of failure is how it thrives and dominates when it succeeds. When it doesn’t, it closes them and moves on.

Amazon continues to make acquisitions that bolster its revenue and expand its dominance into new industries. Recently, it acquired One Medical for $3.9 billion, one of its most expensive acquisitions ever. Several weeks later, it also announced that it was shutting down Amazon Care, implying that it was making groundbreaking changes to the way it operates its healthcare segment. It certainly looks like Amazon is gearing up for a big push here, and it could disrupt the entire healthcare industry beyond the digital and telehealth realms that are already reinventing healthcare.

Is it too late to buy Amazon stock?

Despite the slowdown in e-commerce, Amazon’s story is far from over. Its e-commerce growth is still in the double digits, so even on that front it remains in growth territory. But the other businesses he’s getting into make it a valid bet on strong growth for years to come, whether e-commerce related or completely separate.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jennifer Saibil has no position in the stocks mentioned. The Motley Fool holds positions and endorses Amazon and Walmart Inc. The Motley Fool has a Disclosure Policy.


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