10 things you need to know before you invest in Amazon shares

PHOTO: Reuters

Jeff Bezos steps down on July 5, 2021 as the CEO of Amazon. Here are 9 things investors and non-investors need to know when putting your money into Amazon shares. 

A stock that needs no introduction, Amazon is undoubtedly the trailblazer when it comes to e-commerce. It has also since made a name for itself in cloud computing with Amazon Web Services and in the grocery business with Amazon Fresh. 

With the company embarking on a new phase from July 5, 2021, here are some of the top things investors will need to know.

1. Jeff Bezos steps down on July 5

Jeff Bezos, the current CEO of Amazon and richest man in the world, will be stepping down as Amazon CEO on July 5, 2021. This was announced on May 26, 2021 during Amazon’s virtual annual shareholder meeting. 

Why July 5? Bezos shared that it was the day Amazon was incorporated in 1994, 27 years ago. 

However, that doesn’t mean that Bezos will be washing his hands off Amazon. Rather, he will continue to be involved in Amazon’s growth, by focusing on new products and early initiatives for the company as he moves to become the executive chairman on the board. 

Jeff Bezos will be handing over the reins to Andy Jassy, the current CEO of Amazon Web Services — a subsidiary of Amazon that provides on-demand cloud computing platforms.

Jassy is also one of the pioneers of Amazon, having been in the company for nearly as long as Bezos has, joining Amazon in 1997 when the company was first listed. 

2. Amazon first entered Singapore in 2017

Amazon has been around since 1994, but it’s not till 2017 that Amazon Prime was launched in Singapore. Amazon Prime in Singapore at that time was focused largely on groceries and household items, competing with the likes of Redmart and Honestbee (back when it was still around).

It then took another two years before Amazon.sg made its first splash. Prior to Amazon.sg, those in Singapore could still make purchases off Amazon.com, though there were restrictions such as certain products either not being available for international shipping to Singapore or incurring high shipping fees. 

The launch of Amazon.sg gave Singaporeans yet another online marketplace to shop at, competing with the likes of Shopee and Lazada.

While you can find a plethora of different items from various categories on Amazon, you can also find stand-out items such as the Amazon Kindle and a giant library of books to choose from.

ALSO READ: How to buy shares in Tencent, Alibaba, Facebook, Apple, Amazon and Google (FAANG & BAT)

3. Top three stocks in terms of market cap

Amazon is the third largest stock on the US market in terms of market capitalisation, only after tech leaders Apple and Microsoft. 

Here’s what the market cap of the leading stocks on the US market look like:

  • Apple: US$2.336 trillion (S$3 trillion)
  • Microsoft: US$2.091 trillion
  • Amazon: US$1.771 trillion
  • Alphabet: US$1.701 trillion
  • Facebook: US$1.006 trillion

Amazon is also one of the highest priced stocks, trading at around US$3,510. 

4. First U$100 billion quarter in company history in Q4 2020

Amazon marked its first U$100 billion quarter in Q4 2020, delivering US$125.56 billion in revenue. This was boosted by holiday season spending and an increase in online spending during the pandemic.

Amazon also previously shared in early December that the 2020 holiday season was their biggest yet, with sales such as Prime Day, Cyber Monday and Black Friday contributing to the jump in sales.

More specifically, independent businesses (mostly small and medium-sized businesses) selling on Amazon saw worldwide sales grow over 60per cent year-over-year. 

However, Amazon’s not the only company to reach that milestone. Apple also crossed the U$100 billion quarter mark during the same period.

ALSO READ: 2 e-commerce stocks growing faster than Amazon

5. 30 per cent growth in revenue for Amazon Web Services (AWS)

A leader in cloud computing, AWS saw a 30 per cent year-on-year growth in revenue last year despite the pandemic. This translated to US$45 billion in revenue in 2020, which was 12 per cent of all sales but an impressive ~60 per cent of all operating profits for the year. 

AWS numbers continue to grow from strength to strength, with the revenue of AWS rising 32 per cent to US$13.5 billion in Q1 2021 (up from 28 per cent in Q4 2020), delivering an operating profit of US$4.16 billion.

6. Trading at a Price-to-earnings (P/E) ratio of 66

Amazon is no undervalued stock. It’s P/E ratio as of July 2, 2021 is 66.8. The P/E ratio measures a company’s current share price relative to its per-share earnings (EPS).

However, it must also be noted that the P/E ratio is not the only consideration when it comes to deciding whether to invest in a stock, particularly when comparing companies across different industries.

For example, tech stocks could be more overvalued compared to retail stocks or entertainment stocks.

Therefore, it’s best to use the P/E ratio as a way to compare companies within the same sector to see which stock is more overvalued. For example, Alibaba is trading at a P/E ratio of 30.7 while Walmart’s P/E ratio is 23.4.

ALSO READ: Jeff Bezos to step down as Amazon CEO as sales rocket past $133b

7. Amazon does not pay dividends

If you’re looking for a dividend-paying stock, look away from Amazon. 

Amazon currently does not (and has never) rewarded its shareholders with dividends, just like other high-growth stocks such as Facebook and Alphabet. Instead, these companies use their earnings to continue supercharging their growth, be it through acquisitions, investments, R&D and more. This also means that an investor of Amazon would be looking for capital gains rather than passive income.

However, this does not mean that Amazon will never pay out dividends in the future, though that would be dependent on growth opportunities, leftover cash and ultimately the decision by the management. 

If you’re looking for a steady dividend income stream, you can read this article on passive income investing. 

8. Up 10 per cent since the start of 2021

PHOTO: Yahoo

A single Amazon stock today costs US$3,510 — up 10.17 per cent from the US$3,186 it opened the year with. Just twelve months ago, it was trading at US$3,164. 

If we look back five years ago to July 2016, Amazon shares were priced at US$745. That’s around a 371 per cent increase over five years. 

Over the past year, Amazon’s share price has been going sideways, fluctuating between US$3,000 to US$3,500 per share. 

ALSO READ: Jeff Bezos, Elon Musk top Forbes' record-setting billionaire list

9. 200 million paying Amazon Prime members 

At the start of 2020, pre-pandemic, Amazon had 150 million Prime members. Fast forward a year later, Amazon now has 200 million Prime members — a 50 million additional customers in just 12 months. This means 200 million people paying Amazon Prime subscription each month.  

Here in Singapore, Amazon Prime costs just $2.99 a month. Here’s what this membership unlocks:

  • Free and fast delivery, with no minimum required when you purchase from Amazon’s domestic Prime eligible selection. This includes free international delivery on eligible items from Amazon US when you make an international order of over $60 while shopping on Amazon.sg.  
  • Movies and TV shows, including Exclusive access to Amazon original series such as Jack Ryan, Modern Love, and The Grand Tour.
  • Early access to Amazon Lightning Deals 30 minutes before other non-Prime customers
  • Download and play free games every month, while enjoying access to free in-game loot, and a premium experience on Twitch

Amazon also offers a 30-day free trial to Prime for you to get a taste of the perks before continuing with the monthly subscription. 

10. Amazon is venturing into healthcare services

With the increased focus on public health due to the Covid-19 pandemic, healthcare has never been more important. 

Recognising the population’s changing needs and growth of the industry, Amazon has started to make its foray into offering healthcare services, starting with Amazon Care, a telemedicine program that will be made available to employers in the US.

With Amazon Care, users will be able to use the app to connect with doctors, nurse practitioners and nurses virtually, at any time of the day via in-app chat or video.

While this offering is currently limited to employers in the US, much like other Amazon services like Prime and Amazon.sg, there is a possibility of such a service being offered in Singapore in the future. 

Amazon Care isn’t the only healthcare service Amazon has offered. Amazon Pharmacy (selling prescription drugs) and Amazon Halo (a wristband that measures vital statistics such as steps, heart rate and sleep time) have already been rolled out in 2020.

Investing in Amazon, from Singapore

So, should you buy Amazon shares? 

When considering whether Amazon shares are worthy of a ‘Buy’, you first have to consider how the stock will fit into your portfolio. 

Does your portfolio already have multiple other stocks in the e-commerce space? Or will Amazon fill the gap in your portfolio and offer diversification into e-commerce and cloud computing? You should also ensure that your portfolio isn’t too heavy on a single stock. 

If you’re looking to add Amazon shares to your portfolio, keep in mind that Amazon shares don’t come cheap — at $3,510, that’s about $4,700 for a single share. You can make the purchase through a brokerage that provides you with access to the US markets. 

If you’re keen on Amazon shares but don’t have enough for a single share, you can consider brokerages such as Interactive Brokers that offer fractional shares. Alternatively, you can also opt to invest using CFDs, particularly if you’re looking for short-term gains. 

Besides purchasing stocks of Amazon, if you’re looking for an affordable and diversified investment option, you can also consider Exchange Traded Funds (ETFs) — a basket of securities that seek to track an index. For example, investing in an ETF that tracks the S&P 500 can give you exposure to the growth of not only Amazon, but also other leading companies on the index.

This article was first published in SingSaver. All content is displayed for general information purposes only and does not constitute professional financial advice.