Amazon stock split is complete. Time to buy the stock

It’s official: amazon (AMZN -1.48%) has just executed its first stock split since 1999.

On Monday, the e-commerce giant gave investors 20 shares for each one they previously owned, and as a result, the price of individual shares plummeted. After years of trading stocks in the $1,000 range, it seems strange to see Amazon stock only worth around $120. But while the price of an individual Amazon stock is much lower than it was last week, investors must not be deceived. The stock is no cheaper than it was, and the value proposition is the same as last week before the split was announced.

While the stock split itself doesn’t matter, there are a number of great reasons to buy Amazon stock now. Let’s take a look at some.

Image source: Amazon.

1. Stock is cheap

Amazon shares are not cheap because of the stock split. It’s cheap because it’s down a third of its peak last fall, and its earning potential is stronger than ever.

That said, the company generally accepted accounting principles (GAAP) earnings were hurt in the last quarter by a drop in the value of Rivian, the electric vehicle maker in which Amazon has invested. This was purely a paper loss, based on a mark-to-market accounting method, which led to the company recording a loss in the first quarter. Based on 2021 earnings per share, however, Amazon is trading at a price-to-earnings ratio of just 37.8, the cheapest it has ever been based on that metric.

In May, Amazon actually dropped below where it was trading in February 2020 before the pandemic. In other words, the market seems to think that all the gains the company has made in the last two years are worthless. This is an error.

2. The e-commerce business will recover

The first quarter was ugly for e-commerce. In Amazon’s North American segment, revenue grew just 8% and the company posted an operating loss of $1.6 billion compared to an operating profit of $3.5 billion in the year-ago quarter. This business segment is not just e-commerce. It includes the high-margin advertising business, meaning that US e-commerce losses were likely even worse than $1.6 billion.

The international segment was equally disappointing. Revenue actually declined 6%, or was flat in currency neutral terms, leading to an operating loss of $1.3 billion, which compares to a segment operating profit of $1.3 billion in the prior-year quarter. .

Amazon is facing a lot of headwinds in e-commerce. Rising fuel prices contributed to higher shipping costs, which in part explains why shipping costs increased by 14% even with units shipped stable. The company also over-expanded capacity during the pandemic and is now subletting excess space, but should eventually grow to that capacity.

The e-commerce industry, in general, also faced difficult comparisons in the first quarter, as the first quarter of 2021 was the last full period before COVID-19 vaccines were available to the public. This was also a time when Americans also received stimulus checks. Therefore, e-commerce performance is expected to improve throughout the year, although Amazon may continue to lose money this year due to excess capacity.

3. AWS is still a steamroller

Amazon’s biggest profit contributor is also the most reliable and shows no signs of slowing down.

Amazon Web Services (AWS), its cloud infrastructure unit, reported first-quarter revenue growth of 37% to $18.4 billion and currency-neutral operating revenue growth of 53% to $18.4 billion. $6.5 billion. This gives AWS an operating margin of 35%. Despite competition from Microsoft and AlphabetAmazon is still the leader in cloud infrastructure and looks set to stay that way based on its growth rate and profitability.

AWS continues to expand into new products and services such as Amplify Studio and is attracting customers such as Boeing, telephone, and the owner of the Toronto Maple Leafs hockey team. AWS architect Andy Jassy has replaced Jeff Bezos as CEO, showing the importance of the cloud infrastructure business, and some see the addressable market for cloud infrastructure systems reaching multi-trillion dollar levels.

On the earnings call, management said that AWS’ backlog increased 68% to $88.9 billion, a clear sign of strong future growth. CFO Brian Olsavsky expressed confidence in the business, saying, “For the full year 2022, we expect infrastructure spending to grow year over year, in large part to support the rapid growth and innovation we are seeing in AWS.” Some investors have even argued that AWS alone can justify Amazon’s valuation.

2022 is likely to still be a difficult year for Amazon, and Q2 guidance was not encouraging as the company called for revenue growth of 3% to 7%, an end result amid a $1 billion operating loss. and an operating profit. profit of US$ 3 billion.

Still, the company’s myriad competitive advantages are going nowhere, and the business is expected to improve as it grows into excess logistical capacity and the economy eventually stabilizes.

Stock split or not, now seems like a great time to take advantage of the discount at this top company.

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