5 things to consider before you trade Amazon

Ben Weiss, Thursday, 18 July 2019

Amazon considerations

Prime Day, which rather ironically lasted for 48 hours, is over. Deals have been swept up, bank accounts have been emptied and packages filled with tablets, tennis balls, toilet paper and all sorts of other gifts have been dispatched. Amazon sales are flying.

What started as Jeff Bezos selling books online in his garage has turned into a trillion-dollar company that spans industries, pushes conventional corporate boundaries and is slowly being integrated into seemingly every part of our lives. Unsurprisingly, it’s one of the more popular equities to trade, but should you trade Amazon and is it a good investment?

There are a few things to consider before opening a position.

     1. Jeff Bezos' wealth

Jeff Bezos

Jeff Bezos Source: Jeff Bezos/CC BY-SA 4.0.
It’s wise to have a look at the person leading a company before deciding whether and how to trade it. After all, they have the power to influence the company’s direction.

Jeff Bezos, CEO and founder of Amazon, got very rich, from the success of his company. As of 2017, he was labelled as the richest person in the world, and a year later Forbes even went as far to designate Bezos the richest person ever, as his personal wealth surpassed $100 billion. A divorce from settlement undermined that title, and instantaneously propelled his ex-wife Mackenzie Bezos to be one of the world’s richest woman.

Anyhow, Jeff Bezos still holds a lot of wealth. Amazon made him rich and he can return the favour, with funding for any future project going to be easily accessible if needed. His almost-infinite wealth means Amazon has the potential capital available if it did need substantial investment in the future without the need to onboard investors who could reign in ambitions and more potently, cut into subsequent profits.

Of course, if Bezos suddenly loses his billions, Amazon won't just crumble to the ground. But it may just be something worth thinking about going forward - there's a certain appeal of investing in a company that's run by the richest person in the world. 

    2. Amazon’s ambition

Amazon HQ spheres The futuristic 'spheres' at Amazon's HQ in Seattle, Washington. Source: Mitchell Haindfield/CC BY 2.0.

With great power comes great opportunity. Amazon’s net sales for 2018 were $232.89 billion. Their GMV share of the US e-commerce industry is currently 45%. From real estate referrals to brick-and-mortar retail, operations spanned across more industries than an enormous majority of competitors. It’s clear that they have the drive and willingness to expand into as many sectors as possible, while pushing for evolution in selected fields.

Amazon’s vision of trying to be revolutionary, for instance with autonomous deliveries, is what could set them above the rest in terms of trading equities. It has the capital to properly invest in the sufficient means that will help them to make their ambitions become a success.

As for trading, this means that Amazon should continue to dominate headlines with their innovations. As a consequence, its price will assumingly be volatile as the market reacts to the latest happenings from Amazon.

    3. High susceptibility

As a market leader in multiple industries, Amazon is naturally going to be highly susceptible to any major industry change. For instance, their launch of Amazon Prime Video put them as front runners in the online streaming industry. Therefore, any major change to the streaming industry (i.e. Netflix, as a major competitor, acquiring exclusive rights for several the most popular TV shows at once) could have a sharp impact on Amazon’s price.

Like with a lot of things, putting your neck on the line, ahead of the competition, always makes you more vulnerable. There’s no place to hide. With Amazon spanning so many industries, one piece of bad news in one sector of the business will ultimately transcend across the entire company and could potentially lower the price.

For example, Netflix is a major player in the tech industry, but its sole focus is on streaming. On the other hand, Amazon expands much further and covers a wider area of industries. So, for Netflix’s price to change from external news, it must come or be related to only the streaming industry, whereas Amazon’s price can be externally affected by every single industry that it operates in.

     4. Amazon's high trading price

 Trading £5 a point doesn’t sound like it will make any dents in your bank account but considering at the time of writing Amazon is trading at just shy of ($)2,000, so £5 a point is going to be colossal. This means that if Amazon’s price moves 200 points, you’ve lost £1,000.

Of course, that means that you can also win a substantial amount were Amazon’s price to change in your favour. But there’s no guarantee that you’ll trade Amazon profitably. It’s all about trading with what you’re comfortable with and more importantly what you can afford.

Amazon day chart

     5. Strategy

We’re big on planning ahead when it comes to trading. In life, being spontaneous is fun and can lead to new opportunities. In trading, spontaneity leads more often than not to a loss of funds and deep regret.

Before opening a position on Amazon, determine what kind of strategy you will implement for the trade. Are you going to scalp, to try to take advantage of small gains? Are you looking to position trade and keep the Amazon position open for a long period of time? It’s important to know why you are trading Amazon and how you plan on trading it before opening a position.

Should I trade Amazon?

Amazon is an attractive equity to trade for a lot of traders. Its high price means that small point changes can still be hugely impactful on open positions and your PnL. As one of the largest and innovative companies in the world, as well as being listed on the NASDAQ and the Wall Street indices, there is no lack of coverage surrounding Amazon.

News and analysis on the firm will be available to you in abundance, so making the correct, well-informed trading decisions will be easier as information about Amazon will be accessible. As we touched upon in point 3, its susceptibility means it can be a volatile market as well. So as long as you can open a position and remain financially comfortable, Amazon is an interesting equity to trade.

Amazon timeline

5 July 1994 – Amazon is officially incorporated.

July 1995 – Amazon begins as an online book shop.

15 May 1997 – Amazon goes public at $18 per share, giving the company a value of $438 million.

January 2002 – Amazon hits profitability.

2011 – A total of 30,000 people are employed by Amazon full time.

December 2016 - A total of 180,000 people are employed by Amazon full time.

June 2017 – Amazon announces intentions to buy Whole Foods for $13.4 billion

23 August 2017 – The deal is approved and Amazon acquires Whole Foods.

December 2017 – A total of 566,000 people work across the globe for Amazon full time.

January 2018 – Amazon opens its first ‘Amazon Go’ store, intended to eradicate the need for checkout lines.

November 2018 – After much talk of plans for a new major headquarters, Amazon announces its ‘HQ2s’ will be in Long Island City, New York and Crystal City, Virginia.

December 2018 – Eight Amazon Go stores are successfully running in the US, and there are plans for up to 3,000 stores to be opened by 2021.

14 February 2019 – Amazon cancels plans for its new HQ2 in New York.

Significant changes in price

Amazon price 5 considerations

↑ 27 April 2012 – Amazon price rose nearly 17% after agreements to invest $200 million and create 2,500 new jobs.

↓ 31 January 2014 – Price falls 10% after earnings miss.

↓ 9 June 2017 – Amazon announces intention to buy Whole Foods and the market reacts badly, with its price dropping over 8%.

↑ 26 October 2017 – After beating earnings expectations, Amazon’s price soars over 12%

↑ 26 April 2018 – Despite protests in favour of increasing warehouse workers’ pay in Germany, Amazon price rises 4.5% after a strong earnings report off the back of announcing that there were over 100 million paying Prime customers.

↓ 10 October 2018 – Amazon suffers with fellow major tech stocks as interest rises spook investors, with its price dropping 6%.

↓ 29 October 2018 – Price of Amazon falls 6.3% following a Q3 earnings release displaying that all the most important businesses were slowing down.


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