Stock splits have been a hot topic this year. Amid the market downturn fueled by economic uncertainty, investors are desperate for good news and forward stock splits have bullish implications. In particular, fractions are only needed after a significant appreciation of the share price, which in itself is generally indicative of a strong underlying asset.
Based on this, Cowen & Co. analyst John Blackledge raised his price target Amazon (AMZN 2.66%) at $ 215 in late July, about two months after the company completed a 20-for-1 stock split. This represents a 112% rise from the 52-week low and a 70% rise from the current price.
Amazon has struggled with rising costs this year, and this headwind has been amplified as consumers withdrew discretionary purchases in response to high inflation. As a result, Amazon saw slow single-digit revenue growth and posted a loss of generally accepted accounting principles (GAAP) in the first and second quarters. That said, the long-term investing thesis is still intact and with shares trading at 2.6 times sales – a bargain compared to the five-year average of 3.8 times sales – this fractional stock is a scream buy.
Amazon is the most popular e-commerce marketplace
Global ecommerce sales are projected to grow 10.6% annually to reach $ 7.4 trillion by 2025, according to eMarketer, and Amazon is better positioned to benefit from this trend than the vast majority of his colleagues. It operates the most popular online marketplace in the world, counting nearly twice as many monthly visitors as the next closest competitor. And it fueled more than 40% of US retail ecommerce sales last year, more than the next 14 competitors combined.
That dominance comes from the authority and scale of the brand. The Amazon brand is synonymous with convenience, and its Prime membership program, which includes perks like free shipping and access to premium streaming content, sweetens the deal for consumers. On the other side of the equation, its vast logistics network greatly simplifies fulfillment for merchants by enhancing the network effects created by its market.
Going forward, these competitive advantages are expected to grow Amazon’s retail business.
Amazon is the leader in cloud computing innovation
According to Grand View Research, cloud computing sales are expected to grow 15.7% annually to $ 1.6 trillion by 2030, and Amazon is well positioned to take advantage of this opportunity. In the second quarter, Amazon Web Services (AWS) gained a 34% share in the cloud infrastructure services market, up from 31% the previous year. To put it in context, AWS has a market share greater than Microsoft Light blue and AlphabetGoogle Cloud combined.
More importantly, AWS is unlikely to lose its lead anytime soon. Research company Gartner once again recognized AWS as a leader in cloud infrastructure and platform services last year, noting that it has “materially more mind-sharing” than any other vendor due to its position as an innovation leader. Based on this, AWS offers more services (and more features within those services) than any other cloud computing and data company from Okta suggests that AWS has six times more customers than its closest competitor, Microsoft Azure.
This has big long-term implications for Amazon. Its cloud business consistently achieves an operating margin of around 30%, while the remaining segments rarely achieve a collective operating margin of more than 5%. This means that Amazon should become increasingly profitable as AWS accounts for a larger percentage of total revenue.
Amazon is gaining share in digital advertising
U.S. digital ad spend will grow 10.5% annually to reach $ 315 billion by 2026, according to eMarketer, and Amazon is gaining momentum. Its market and Fire TV platform have become valuable marketing venues for brands simply because they are so popular with consumers. As a result, Amazon captured 11.6% of digital ad spend in the United States in 2021, up from 7.8% in 2019. And eMarketer says the figure could reach 14.6% by 2023.
The long-term implications here are similar to those of cloud computing. Amazon does not disclose the operating margin of its advertising business, but Google’s advertising business reached an operating margin of 39% in the last quarter, so Amazon’s advertising business will likely be somewhere in that large-scale range. This means the company is poised to become more profitable in the years to come.
To sum it up, Amazon benefits from a strong competitive position in three high-growth markets, two of which are expected to accelerate its total profitability, and with shares trading at a considerable discount to historical valuations, now is a great time to buy this fractional growth. buffer stock.
John Mackey, CEO of Whole Foods Market, a subsidiary of Amazon, is a board member of The Motley Fool. Suzanne Frey, executive of Alphabet, is a member of the board of directors of The Motley Fool. Trevor Jennewine has positions in Amazon and Okta. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Microsoft and Okta. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.