Investors in Amazon suffered a near 50% fall in the value of their shares in the first six months of 2022. Concerns over a slowdown in consumer spending, along with the company reporting its first quarterly loss for some years, have taken their toll on Amazon’s valuation.
However, there’s been some much-needed relief over the past few weeks with Amazon’s share price increasing by almost 30% to $130 (£111), in line with the rise in the Nasdaq Composite index as a whole.
Despite the fall in share price, Amazon has delivered an annual return of 27% to shareholders over the last 10 years, according to Morningstar, although it has not historically paid a dividend.
Mixed second quarter results
Amazon reported a 7% quarter-on-quarter growth in revenue in its second quarter to the end of June, along with a net loss for the second consecutive quarter.
Net sales increased by 7% to $121 (£103) billion in the second quarter, principally due to year-on-year revenue growth of 33% in AWS, Amazon’s cloud services business. According to Statista, Amazon is the market leader in this sector with a market share of 33%, some way above Microsoft Azure’s 21%.
Results were mixed in its core retail business. While revenue rose by 10% in North America, international revenue fell by 12%. The macroeconomic environment of high inflation and rising interest rates continues to be challenging for online retailers.
The second quarter net loss of $2.0 (£1.7) billion was an improvement on its first quarter loss of $3.8 (£3.2) billion. The net loss also included a $3.9 (£3.3) billion write-down of its investment in electric car maker Rivian.
However, it represents a considerable reversal in performance from its net profit of $7.8 (£6.7) billion in the equivalent quarter in 2021.
Andy Jassy, CEO of Amazon, pointed to “continued inflationary pressures in fuel, energy, and transportation costs” but added that the company is “making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network.”
Despite the loss-making results, investors were buoyed by an optimistic assessment from the company about its prospects for the third quarter with forecast revenue of $125 to $130 billion.
Outlook for Amazon shares
In terms of outlook, inflationary pressures on the cost of living are likely to have an impact on consumer spending on both retail purchases and subscription services such as Amazon Prime. However, Amazon’s leading position in cloud services should continue to drive revenue growth.
It will be interesting to see whether the increase in the annual membership cost for Amazon Prime (from £79 to £95 in September) will have an impact on subscriber numbers. The company is also trialling drone deliveries to Prime customers in the US later this year, together with its roll-out of Amazon Fresh grocery stores across the UK and the US.
According to WSJ Markets, the analysts’ 12-month share price forecasts range from $110 to $215. At the current share price of $130, this suggests more potential upside than downside.
Let’s take a closer look at what you need to know about buying and selling Amazon shares.
Investing in share-based investments can be a good way to produce higher returns than cash-based investments. However, your capital is at risk, your investment can go down as well as up, and you may not get your money back. If you are unsure as to the right investment, you should seek financial advice.
How to buy Amazon shares
Before you decide to open an account, you should set your investment goals, including the amount you wish to invest, the length of time you plan to invest for, whether you are comfortable with the risks involved and whether you can afford to lose some, or all, of the money.
If you are looking to buy Amazon shares, the following steps will guide you through the process:
1. Open a trading account
Whether you’re an experienced share trader, or a beginner, you’ll need to open an account with a trading platform.
It’s worth taking the time to review the costs involved - most, but not all, platforms charge a share trading fee and some may also charge an annual platform fee for holding shares.
There are a variety of trading platforms available, from online DIY platforms such as Hargreaves Lansdown, AJ Bell and interactive investor, to app-based platforms such as eToro and Trading212.
2. Where is Amazon traded?
The ticker symbol for Amazon Inc is AMZN. Amazon is traded on the technology-focused Nasdaq exchange in the US which is open for trading from 9.30am to 4pm (Eastern time) from Monday to Friday.
Most trading platforms allow you to purchase US shares. You will be charged a foreign exchange fee (typically around 1%, but may range from 0.15% to 1.5% depending on your platform). Many platforms also charge a slightly higher trading fee for buying US shares.
If you plan to trade US shares regularly, it’s worth looking at the best trading platforms as their fees can vary significantly. A small number of trading platforms, such as IG, allow you to hold your account in US dollars which may reduce the foreign exchange you have to pay.
You will be requested to complete a W-8BEN form which allows you to benefit from a reduction in withholding tax from 30% to 15% for qualifying US dividends and interest.
You will also have a foreign exchange exposure if you hold US shares. If the pound weakens against the dollar, your shares will be worth more in pounds sterling (and vice versa).
As with UK shares, any profit on US shares will be subject to Capital Gains Tax, subject to your annual allowance (currently £12,300). You will not have to pay Capital Gains Tax if you hold the shares in an Individual Savings Account or Self-Invested Personal Pension.
3. Do your research
To find out more about Amazon, visit the company’s investor relations page.
It’s also worth comparing Amazon’s valuation to other comparable US technology companies. One way is to look at the relative price-earnings ratios - shares trading on a high price-earnings ratio have high expectations of significant growth in the future.
Another useful research tool is brokers’ 12-month share price forecasts, which are available on financial websites. There are currently 50 brokers following Amazon shares, and their price forecasts give an indication of the upside and downside risk of the Amazon share price over the next year.
4. Should you invest on a monthly basis or as a lump sum?
People tend to buy shares either as a lump sum purchase, or drip-feed their investment on a monthly basis over time.
Monthly investing is often referred to as a means of ‘pound cost averaging’, whereby making regular contributions helps to smooth out the highs and lows of the stock market. This provides some protection if the share price falls after you have bought shares, as you will effectively invest at the average share price over the whole period.
However, drip-feeding your investment may sacrifice capital growth if the share price is rising and you may also pay more in share trading fees.
5. Place your order
Once you’re ready to buy shares in Amazon, log in to your trading account. Type in the ticker symbol AMZN and the number of shares you want to buy, or the amount of money you want to invest.
Many platforms also allow you to add a ‘stop loss’ after you’ve bought the shares, which allows you to limit your losses if the share price falls. For example, if you buy shares at £100, and set a stop loss of £90, your shares would be sold if the share price falls below £90, limiting your potential loss to 10%.
6. Monitor Amazon’s performance
Whether you hold shares in just a few, or many, companies, you should review how your shares are performing on a regular basis.
Monitoring your portfolio allows you to make any necessary adjustments, whether buying additional shares, or selling part of your holding.
How to sell your Amazon shares
When you want to sell your Amazon shares, log in to your trading platform, type in the ticker symbol (AMZN) and select the number of shares you want to sell.
If you’ve made a profit, you may have to pay Capital Gains Tax (CGT) on the sale of your shares. However, as mentioned earlier, this is not the case for tax-exempt wrappers such as Individual Savings Accounts.
How to invest in Amazon indirectly
You may make a profit if you invest in Amazon shares, however, holding shares in an individual company is higher risk than investing in a wide range of shares. A diversified portfolio should also reduce volatility.
One option is to invest indirectly in Amazon by investing in a fund, investment trust or exchange-traded fund (ETF) that holds Amazon shares, amongst others. These products provide a ready-made portfolio of shares in a number of different companies.
There is a wide range of options, including global and US funds and investment trusts, together with ETFs that track the S&P 500 index. However, you will pay an annual management fee for holding these products.