E-commerce giant Amazon, has grown from a simple online bookstore to one of the world's most influential brands. Amazon is into cloud computing, healthcare, food delivery, and online tv streaming. Since going public in 1997, shares of Amazon have rallied by 166,683%, making it one of the most profitable companies in recent times. This article is a guide for prospective investors interested in buying Amazon Stock.
Table of Contents
Learn How to Buy Amazon Stocks in 3 Easy Steps
Find a broker
A broker is your link between your money and the asset class you want to acquire. However, the broker you use also determines what market price you can purchase your stock. When searching for a broker, look for those that have low commission fees, extra security features, and seamless order executions.
Analyze the Amazon stock price chart
Timing the market is crucial as it determines how quickly you can be "in the money" or how deep your losses can go. Traders use various technical indicators to time their entry, establish support and resistance zones, and decipher market trends. If you are a day trader, analyze the chart on intraday timeframes (e.g., 15 mins, 30 mins, 1 hour), but if you are a swing trader, use the daily timeframe as in the chart below.
When you are done with your analysis, you can start trading. Always develop a trading plan before every trade and stick to it, no matter which direction the market swings, provided your chart readings are in line with your trading strategy.
Amazon company overview
Amazon ranks as one of the world's top companies by market capitalization. As of February 17, 2021, Amazon had a market cap of $1.64 trillion. Amazon recorded growth across all its business segments in its latest quarterly results, crossing the $100 billion mark for the first time. Its streaming and cloud computing segments have been cash cows for the company.
Despite its enviable profitable heights, the company is not resting on its oars. Amazon has a catalog of acquisitions under its belt, spanning from healthcare to food delivery. Last year, the company announced plans to acquire aircraft to support its logistics unit. Few companies have been able to replicate the success of Amazon; fewer have been able to compete with the online retail giant.
However, with the exit of founder and CEO Jeff Bezos happening later in the year, investors would be keen to know whether the incoming CEO, Andrew Jassy, would be able to maintain the company’s momentum.
Amazon business model and revenue streams
Often touted as the largest online retailer globally, Amazon operates a business model with many moving parts. The company generates its revenue from online stores, physical stores, third-party seller services, subscription services, and Amazon Web Services (AWS).
Retail remains the company’s primary revenue source, with online and physical stores accounting for the most significant share. Amazon allows other retailers to sell their products on its platform, from which it charges a commission on sales. Products sold through third-party retailers are those which are less common or with a higher purchase price. This allows Amazon to have a higher inventory turnover and avoid diluting its profits by holding goods for long.
Amazon also generates revenue from its subscription-based business model through its Amazon Prime service. A Prime account allows customers to secure free two-day or same-day shipping on eligible items for an annual fee. Customers also have access to streaming media under the prime subscription. Kindle is another subscription model that generates revenue for the company whereby subscribers can read books online for a token.
Its cloud computing unit, Amazon Web Service (AWS), is its largest source of profits. Amazon currently controls about a third of the global cloud market, nearly twice as much as its next closest competitor Microsoft. The unit generated $12.7 bn revenue compared to the $9.95 billion a year earlier while operating income increased by 37% to $3.56 billion. AWS is a powerful growth catalyst that is continuously bringing in new customers and witnessing increasing enterprise adoption.
History of Amazon
Amazon was founded in the garage of Jeff Bezos’ rented home in Bellevue, Washington, on July 5, 1994. The company started as an online marketplace for books but has since expanded to other products such as drugs, electronics, software, video games, etc.
The name "Amazon" was selected for a couple of reasons. Firstly, Bezos envisioned that his business would be as big as the Amazon River, the world's biggest river. The second reason was that the name sounded "exotic and different." Thirdly, he wanted a name that began with the letter A because it would be at the top of an alphabetized list, which would make it more recognizable.
Bezos got the idea of building an online company after reading a report about the Internet's future, which projected annual web commerce growth at 2,300%. Bezos decided to create the company as a result of what he called a "regret minimization framework," which can be described as trying to avoid having regrets later in life for not participating in any venture.
Out of a list of 20 products that could be sold online, Bezos settled for books due to the global demand for literature, the low unit price, and the vast number of titles available in print. Bezos' parents were the company’s first investors, with a seed capital investment of almost $250,000 in the start-up.
Within the first two months of operating, Amazon sold books to customers from over 45 countries and made up to $20,000 a week. In 1997, the company went public and was listed on the Nasdaq stock exchange.
However, its self-proclaimed title of being "the world's largest bookstore earned it a lawsuit from Barnes & Noble, which accused Amazon of misleading clients as it was not a bookstore. This case was settled out of court. Amazon has since received lawsuits from Walmart, the State of New York, its employees, including antitrust filings by the US Congress and European Commission.
Between 1998 and 2004, Amazon started offering convenience services to customers. In 2005, Amazon launched its cloud computing unit, Amazon AWS, and the crowdsourcing area with Amazon Mechanical Turk. By 2011, Amazon began offering streaming services like Amazon Music and Amazon Video.
Last year, the company announced that it would create an online pharmacy and intimated plans to acquire jets for its delivery business. Amazon has also acquired food delivery companies, such as Deliveroo and Selz. Amazon currently has a workforce of 1.3m employees with a market capitalization of $1.6trn
Brokers that offer Amazon shares
There is a litany of brokers through which potential investors can purchase Amazon shares. However, good brokers are few and far between, especially when it comes to security, user features, and commissions. In view of this, we have shortlisted the best brokers offering Amazon shares
Should I invest in Amazon stock?
Many say there is potential in this company. Amazon is a good stock to invest in because the company has solid fundamentals and is in a good financial state.
Amazon stock investment potential
Amazon is one of the best-performing stocks in the stock market and one of the most profitable companies. The company announced a profit of 7.2bn for Q4 2020. In the last five years, shares of Amazon have appreciated by 527%.
The company is also rapidly expanding into other areas such as food delivery, pharmacy, and media streaming. Amazon has acquired over 100 companies and recently launched its fleet to boost its cargo network. The company's aggressive expansion, obsession for innovation, and long-term focus, which anticipates future consumer demands and trends, make it a viable investment.
What kinds of investors should include Amazon stock in their portfolios?
Shares of Amazon have been trending sideways for the last three months, losing about 7% since September 2020. However, this does not in any way undervalue the stock's potential. The management has shown proactiveness in beating the competition and anticipating where consumer demand is headed. This makes the stock suitable for long-term investors.
How much should I invest in Amazon?
The amount one can invest in acquiring the shares of amazon is not cast in stone. The golden rule of investment is that you do not invest what you cannot afford to lose. Since everyone is not of the same economic status, the amount an investor is willing to lose varies. As such, a potential investor in Amazon should carry out self-study and determine what amount he would be able to part with. However, the rule of the thumb is not to risk more than 2% of your portfolio on a single stock.
How to buy shares in Amazon stock?
Here are the steps to follow if you want to buy Amazon stocks:
- Find a good broker: The first step to purchasing amazon shares is to find a good broker. In the case of amazon, you should look for a broker that has access to the exchange (Nasdaq) where Amazon stock is traded, is acceptable in your country of residence, and has security features to protect your account.
- Open a brokerage account: After identifying a broker, you need to open an account. The time used to open a brokerage account depends on the broker’s requirements and the time necessary to complete your background check.
- Deposit money to your brokerage account: Once the broker has approved your account, you will need to deposit funds to purchase the Amazon stocks. This can be done through bank transfer or credit/debit card. Some brokers allow deposits through online payment platforms, such as Paypal and Skrill.
- Purchase the Amazon share: The last step is purchasing the share. You log in to your online brokerage account, enter the amount or the number of shares you want to purchase, and hit the “buy” button. You may purchase Amazon shares through market order or limit order. While the former allows you to buy the shares at the current market price, the latter allows you to purchase the stock at a chosen price if the market trades to that level.
Buy Amazon shares using a broker
The most common way to purchase a stock is through a broker. After choosing a broker, you create an account with the broker, fund it, and start trading. However, as outlined earlier, the factors to consider when choosing a broker include access to the exchange, acceptability in your country of residence, fees and commission, security features, and user experience. Once you identify a broker that meets these requirements, you can open an account, deposit funds, and start trading. When you purchase amazon shares through a broker, your order is sent to the exchange floor where it is executed. However, though you may have the shares, it will take about two business days for your transaction to be cleared by the clearinghouse.
Buy Amazon shares with a direct stock purchase plan (DSPP)
Investors who do not want to go through a broker can purchase Amazon shares through a Direct Stock Purchase Plan (DSPP). In this case, the investor skips the middleman and purchases shares directly from the company. Amazon launched its DSPP in 2019, and investors can purchase shares through DSPP by opening an account with Computershare, which allows them to buy, hold, or sell the company’s stock.
Frequently Asked Questions
Yes, Amazon is a very profitable business.
Yes, you can make money trading Amazon stock.
There is no best platform to trade amazon stocks.
Shares of Amazon are traded every weekday, except on public holidays, between 9:00 am and 4.30 pm New York Time.
The Nasdaq Exchange