How to Buy Amazon Stock in 2021
E-commerce giant Amazon has grown from a simple online bookstore to one of the world's most influential brands. Amazon is involved in cloud computing, healthcare, food delivery, and online TV streaming. Since going public in 1997, Amazon’s shares have skyrocketed, but could they still be a good buy for prospective investors?
Table of Contents
Learn How to Buy Amazon Stocks in 3 Easy Steps
Choose a Broker
Analyze the Amazon Stock Price Chart
After performing some fundamental analysis to determine Amazon’s financial health, check out its price chart to choose the best time to buy (e.g., on a dip or when the price breaks upwards through resistance). The time frame to view the chart depends on your trading style: day trading, swing trading, or position trading.
When the time is right, you can specify the size of your investment — as a number of shares, amount of money, or CFD stake size — and press the broker’s “buy” button for the stock. If you’re buying based on technicals (i.e., the stock price chart) rather than fundamentals, be sure to add a protective stop order to close your trade if it goes against you.
Amazon Company Overview
Amazon is the biggest e-commerce company in the world, selling virtually everything from books and electronics to food and drugs. In addition to retailing, the company also manufactures and sells its own products and services, such as Amazon Echo and the Kindle e-reader, and it offers digital streaming services (including movies and TV shows it made itself) via the Amazon Prime Video platform. As if that wasn’t enough, Amazon is also involved with artificial intelligence (AI) and cloud computing. Its Amazon Web Services cloud computing platform is the largest globally. Amazon’s streaming and cloud computing segments have been cash cows for the company.
With a market cap of $1.64 trillion (as of February 2021), Amazon ranks as one of the world's largest companies by market capitalization. The 2020 fourth-quarter results recorded growth across all business segments, crossing the $100 billion revenue mark for the first time.
Amazon continues to diversify into other businesses and has made several acquisitions from healthcare to food delivery. In 2020, the company announced plans to acquire aircraft for its logistics unit.
With Amazon founder Jeff Bezos expected to step down as CEO by the end of Q2 2021, investors will be keen to know whether the incoming CEO, Andrew Jassy, will be able to maintain the company’s momentum.
Amazon Business Model and Revenue Streams
Amazon operates a business model with many segments. It generates 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, whereby Amazon allows other third-party retailers to sell their products on its platform in exchange for commission fees from the sales.
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. Prime customers also have access to streaming media. Kindle is another subscription model that generates revenue by allowing readers to read books online.
The company’s cloud computing segment, 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. While the segment contributed only 12% of Amazon’s revenue in 2020, it accounted for a whopping 59% of the company’s profit in that financial year.
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, including drugs, electronics, software, and video games.
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%. His major motivation was 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. 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, who were the company’s first investors, provided seed capital investment of almost $250,000 in the start-up.
The company went public in 1997 and was listed on the Nasdaq stock exchange. 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.
In 2020, the company announced that it would create an online pharmacy and that is planned 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 as of February 2021.
Brokers that Offer Amazon Shares
All stockbrokers that have direct or indirect (via a partner stockbroker) access to the Nasdaq exchange offer Amazon shares for trading. However, based on commissions, user features of their retailing platforms, and other services, we have shortlisted the best stockbrokers offering Amazon shares.
Should I Invest in Amazon Stock?
At the time of writing, many say that Amazon still has potential for growth because of the way it continues to diversify its business. Given the company’s revenue and profit growth in 2020, Amazon could be a good stock to invest in.
Amazon Stock Investment Potential
Amazon stock is one of the best-performing stocks on the Nasdaq exchange. The company announced a profit of 7.2bn for Q4 2020, and in the five years to 2021 its shares appreciated by 527%.
The company's aggressive expansion into new areas, its obsession for innovation, and its long-term focus make Amazon a viable investment.
What Kinds of Investors Should Include Amazon Stock in Their Portfolios?
Amazon shares traded sideways Between July 2020 and June 2021. This could be due to the firm’s founder’s intention to step down as CEO. Investors should invest in this stock if they believe that the new leadership can continue to beat the competition in the same way that Bezos did.
How Much Should I Invest in Amazon?
The golden rule of investment is to invest only what you can afford to lose. So, how much you invest depends on your disposable income. The key is to budget how much of your income you want to use to build your investment portfolio, bearing in mind that you should never allocate more than 2% of that amount to any single stock.
How to Buy Shares in Amazon Stock?
There are two main ways to buy Amazon stock: via a broker or by participating in the company’s direct stock purchase plan (DSPP). Let’s look at each route to becoming an Amazon shareholder.
Buy Amazon Shares via a Broker
The factors to consider when choosing a broker include access to the exchange, acceptability in your country of residence, trading 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 market order is sent to the exchange floor where it is executed.
Buy Amazon Shares via the 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). DSPP enables you to purchase 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
Amazon's explosive growth in its early years came at the expense of profitability, and it lost money during its first 17 quarters as a public company, recording its first profit of just 1 cent per share in Q4 2001. Fast forward to the end of 2020, and Amazon's gross profit stood at more than $94 billion with its net profit standing at more than $21 billion.
After performing fundamental analysis to determine that the company is in good financial health, you should do a technical analysis to know the right time to buy. Depending on your trading style, you can buy on a pullback to a support level or the breakout of a resistance level.
With $1,000, you can’t buy even one share of Amazon stock because the share price is at least $3,000 (at the time of writing). However, you can invest your $1,000 in Amazon via a brokerage such as Robinhood that allows you to trade fractional shares.
Amazon has never paid any cash dividends to its shareholders, even though it has been consistently profitable in the last few years. The company uses its earnings to pursue growth. While we can’t say for sure what will happen in the future, the company may not change the policy anytime soon.
Invest with only an amount you can afford to lose and do not commit more than 2% of your investment capital to any single trade. Always place a stop-loss order so you don’t lose more than you intended to risk, but be careful not to set the stop loss too close to your entry level nor too far from it.
Amazon stock is listed on the Nasdaq exchange, but it is also traded on the London Stock Exchange and the Euronext exchange. Your broker can buy the stock from any of those exchanges.