Amazon | Fundamental Analysis | Must Read | LONG Amazon stock hasn't changed much this year compared to the S&P 500's 20 percent rise. Thus, it is clear that the retailer's stock has not performed well in 2021. Worse, Amazon reported lower net income and operating income in its most recent quarter. And free cash flow fell to $2.6 billion in 12 months, down from more than $29 billion in the previous quarter.
But instead of abandoning this retail giant, it would make more sense to buy more Amazon stock. Of course, many are disappointed that the stock hasn't performed strongly this year. But we all know that today's disappointing earnings reports don't mean disaster for Amazon. On the contrary, they speak to an investment in the business. Let's take a closer look at why the New Year's resolution is to buy more Amazon stock.
It's important to put Amazon's performance in perspective. First, in terms of revenue, the company has significantly increased its annual net income since 2018. And annual earnings have been rising steadily over the past decade. Return on invested capital has also become higher.
Last year, net sales rose 38% to more than $386 billion, and net income doubled to about $21 billion. Of course, the pandemic gave Amazon a boost. Since customers preferred to shop online when the pandemic swept the world.
The pandemic continues, but this year things have changed. Businesses have reopened, there are fewer closures, and for the most part, people have gone back to their regular businesses. Nevertheless, Amazon's business continues to grow. In the first quarter of this year, for example, sales jumped 44% to $108 billion. And net income more than tripled to $8 billion.
As mentioned earlier, Amazon's last earnings report didn't look so rosy. And the company even said that the fourth quarter would bring "several billion dollars in additional expenses." That's because Amazon is dealing with issues affecting the sector as a whole, such as supply chain problems and rising delivery costs. Many of these problems are temporary in nature.
At the same time, Amazon has stressed that it will limit the impact on customers and partners who sell on the platform. This is why analysts are confident in the future success of Amazon's business. The company is committed to keeping its audience happy, and that should keep buyers and sellers coming back. It's also important to remember that e-commerce isn't going away. According to eMarketer, retail e-commerce is projected to grow by more than 16 percent this year to $4.92 trillion. Amazon, as the leader, will benefit.
Finally, Amazon's cloud computing business is another reason to be optimistic about future growth. Amazon Web Services (AWS) is a leading global player, and its third-quarter sales were up 39%. And, importantly, it accounts for more than half of Amazon's operating income. AWS continues to expand. It has 81 availability zones in 25 regions around the world, and the company plans to open 24 more availability zones and eight additional AWS regions. All of this means we can expect AWS to continue to grow profits.
As for Amazon's market performance, the company's stock has gradually risen more than 1,700% over the past decade. The growth did not happen overnight. On the contrary, it has accompanied Amazon's achievements. Everything that Amazon is doing today - along with the strength of AWS - gives confidence that this trend will continue in the long term. So one should not worry about the current difficulties. Instead, one should look for opportunities to buy new stock in this remarkable long-term company.
