I think Amazon (NASDAQ:AMZN) has been one of the best investments of modern times. As I write, it has risen 166,489% since it went public. However, in 2022, the stock price dropped almost 50%.
In fact, 2023 was one of the greatest periods to be an Amazon shareholder… had the shares been bought in late 2022 when the price was down.
If I’d bought exactly at the bottom in December 2022, the price would have risen 75% by now. I didn’t time it that perfectly, but my profits have been good nonetheless.
How the shares bounced back
The firm’s net income was the primary cause of the big 2022 drop. It went down massively during that year and only started to rise again after the company reported a loss of $2.7bn in 2022!
Management had made a $700m investment in Rivian in 2019, which has dropped 80% since it went public in 2021, the leading contributor to Amazon’s 2022 loss. In 2023, the Rivian share price stopped falling, and Amazon’s earnings began to stabilise as a result.
The graph below shows the company’s stock price (in blue) and its earnings per share (in orange) from January 2022 until today.
Amazon has significantly beaten expectations in the last three quarters of earnings results. It beat them by $0.10 in Q1, $0.31 in Q2, and $0.35 in Q3.
Contributing to the recent growth, high-margin segments of the business have continued to expand, like Amazon Web Services. Also, with a focus on automation related to AI, including drone deliveries, warehouse management tools, and vehicle inspection, margins have started to increase across the firm’s divisions.
However, one of the key risks to consider is that efficiency tools take money to invest in. Therefore, margin growth attributed to this may be slower due to financing the new technology to begin with.
Cost-cutting and efficiency measures
The firm announced 27,000 job cuts last year, which was a common trend at the time for technology companies.
The macroeconomic slowdown certainly put pressure on businesses to maintain their bottom lines and revenue growth. Yet the only significant way to maintain earnings during the period of reduced consumer spending seemed to be through internal cuts.
In 2023, management also deployed over 750,000 robots. For example, Digit helped the firm stack boxes and move items, replacing manual labour by humans in warehouses. And Sequoia is a robotic system the company is using to identify and store inventory faster, increasing delivery speeds.
A look at risks to come
To me, the greatest risks related to Amazon shares right now are the firm’s revenue growth and valuation.
For example, it has a price-to-earnings ratio of over 77, which is extremely high. When using future earnings estimates, that does come down to just under 40, but it’s still hefty and priced for perfection.
Also, because the company is so large and has expanded to such a significant extent, there may be limits on how much revenue can grow. Instead, the company will be looking at increasing earnings through improved margins. I think it’s geared up well for this.
2023 was a good year to buy Amazon shares, in my opinion.
I definitely don’t regret buying my stake last year, and I plan on holding it for a long time.
The post Here’s why the Amazon share price rose 75% in 2023! appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Oliver Rodzianko has positions in Amazon. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
