As a first time investor, it can be hard to choose from thousands of stocks, but one company that newbies will be familiar with is Amazon (NASDAQ: AMZN). This stock has seen massive growth in recent years, and we delve into the reasons why new investors should still invest in this tech giant.
With a market cap of roughly $1.7 trillion, the sheer size of Amazon means that its stock price will be relatively stable and anchor your portfolio. An anchor stock’s importance cannot be understated as it provides stability, modest growth, a dividend, and has limited downside. Amazon ticks all these boxes and is a great addition, especially when the market is volatile.
Amazon reported another stellar quarter in Q4 2020, with revenue increasing by 44% year-over-year to $125.6 billion in Q4 of 2020. This sort of performance is typically associated with growth stocks and not with companies as large as Amazon. Its core marketplace made up the majority of the revenue, although Amazon Web Services (AWS) is hugely profitable and growing but makes up roughly one-tenth of revenue. It reported a $7.2 billion net income compared to $3.3 billion the year prior despite higher costs due to COVID-19.
One of the biggest takeaways from Q4 was that visionary Jeff Bezos is transitioning from CEO to Executive Chair to remain involved. This transition has likely been in the works for many years, and the lack of movement in the stock price after earnings demonstrates this. Andy Jassy will transition to CEO and has been with Amazon since 1997, successfully leading AWS since its inception in 2003. This is likely to be a smooth transition, and Bezos states that it is the “optimal time”.
Amazon has continued to innovate from its days as a bookstore, although its new inventions have not always worked out. You would be forgiven for forgetting Amazon Spark or Amazon Restaurants. However, for the dozens of failures, something emerges that will take the business to the next level. Inventions such as AWS, Amazon Prime, and Alexa are a testament to this. Bezos’ stated that “Amazon is what it is because of invention.” This is instilled in its culture, which will serve it well in the years to come.
One of Amazon’s latest ventures is a move into healthcare. In 2018, Amazon acquired PillPack for $753 million to get into the online prescription market and rolled out Amazon pharmacy in recent months. In 2019, Amazon started Amazon Care which is available to its employees in Washington state. Rumors have been circulating that this could be expanded to other employers.
Investing in any company comes with risks, and Amazon is no exception. The most considerable risk in the current climate is regulatory issues due to its size. Late last year, the European Union filed antitrust charges against the company, while Amazon remains embroiled in other lawsuits with European Regulators and further hearings related to Big Tech and imposing larger fines for breaches. In the U.S., Amazon will also be keeping a close eye on the Biden administration and its plans to increase the minimum wage, among other things.
Another issue facing the company is fake online reviews on its marketplace. An investigation by ‘Which?’ found that fake reviews were “being sold in bulk”. It has also faced challenges concerning faulty products being sold from its website, and a California appeals court ruled that it was liable for faulty goods sold on its platform. These issues are something that investors should keep an eye on, but so far, it has had no real impact on Amazon’s ability to grow.
It’s the stock to own
Amazon is undoubtedly one stock that investors should buy when they start investing and should continue to provide market-beating returns. It has consistently demonstrated its ability to innovate and become increasingly profitable. Whether Jassy taking the reins will place added emphasis on its highly lucrative AWS or another innovation that will fuel growth, the future looks bright for Amazon.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.