Amazon (AMZN) Up 30.1% YTD on Retail Power: Should You Buy? – July 5, 2024

Amazon (AMZN – Free Report) has seen its stock price rise 30.1% year-to-date (YTD), outperforming the Zacks Internet – Commerce industry and the S&P 500 Index, which have returned 21.5% and 16.7%, respectively. The e-commerce giant reached the milestone by surpassing a market capitalization of $2 trillion late last month for the first time, now standing at $2.06 trillion as of July 3.

The company is seeing growing investor confidence in its cloud business, generative AI capabilities and, most importantly, its retail business, which is the largest contributor to its revenue.

Amazon’s dominance of e-commerce, fueled by solid Prime momentum, is a key growth factor behind the success of its retail business. Its distribution strength, growing fulfillment network, ultrafast drone deliveries and momentum in cashierless technology are other positives.

A strong global presence and significant progress in emerging geographic markets such as India, Brazil, Australia, Mexico, the Middle East and Africa are an added advantage.

AMZN Price Performance Year to Date

Image Source: Zacks Investment Research

Prime Momentum Strengthens E-Commerce

Amazon Prime’s solid positioning, thanks to Prime benefits including a strong loyalty system, customer-friendly offers, fast grocery delivery services, and robust Prime Free One-Day and Prime Free Same-Day Delivery services, continues to drive the company’s growth in the growing e-commerce market, which is expected to reach $183.8 trillion by 2032, according to a report by IMARC Group, registering a compound annual growth rate (CAGR) of 27.2% between 2024 and 2032.

Strengthening relationships with third-party sellers on a company’s e-commerce platform is a major asset to its online retail business.

Growing momentum in “Shop with Prime” thanks to strategic partnerships with Sales Force (CRM – Free report) and Online shop (STORE – Free report) helps the company gain solid popularity among various sellers.

AMZN’s same-day grocery delivery offer for orders in the Fresh category on the platform further enhances customer engagement. With Prime, customers also have access to unlimited grocery delivery on orders over $35 from Whole Foods Market, Amazon Fresh and other local grocery and specialty stores.

One pharmacy business worth noting is the growing Prime benefits business. It offers RxPass, a Prime membership benefit that lets Prime members get all their eligible medications for one flat monthly fee of $5 and free shipping.

The company also recently expanded its same-day drug delivery service to New York and Los Angeles to bolster its online retail pharmacy business, Amazon Pharmacy, and plans to expand it to more than a dozen cities in the United States by the end of the year.

As for other benefits, Amazon recently partnered with Grubhub to include Grubhub+ as a permanent Prime membership offering. Prime members can place food orders from a variety of restaurants across all 50 states nationwide through Grubhub directly on Amazon.com and in the Amazon Shopping app.

Additionally, Prime members can enjoy an ever-expanding library of original content, regional content and sports content with a Prime Video subscription.

The benefits of e-commerce, combined with the benefits of online streaming, are helping to grow Prime’s subscriber base, which in turn is driving growth in Amazon’s subscription revenue. In the first quarter of 2024, Amazon saw an 11% increase in subscription sales, which amounted to $10.72 billion.

Growing offline stores help maintain a competitive position

Amazon’s growing presence in the offline retail space, driven by the growing number of Fresh and Whole Foods stores, is helping the company compete effectively with retail giants like Walmart (WMT – Free Report), Target, and Costco, to name a few.

It recently opened a second Amazon Fresh store in New Jersey. The company also plans to open another Amazon Fresh store in Virginia.

Amazon is preparing to launch a smaller Whole Foods Market store called Whole Foods Market Daily Shop in Manhattan.

The introduction of an intelligent shopping cart called Amazon Dash Cart, based on advanced computer vision technology, which is intended to provide offline customers with a better shopping experience, is a plus.

A big plus is the growing popularity of Amazon Go, the company’s cashier-free store.

Application

Amazon’s near-term and long-term prospects are expected to benefit from strong retail strategies, which include strengthening its online and offline retail presence, distribution channels, and delivery services. Additionally, expanding its global presence and growing Prime adoption remain key positives.

This Zacks Rank #2 (Buy) stock enjoys strong market recognition, and experienced investors should consider leveraging AMZN’s potential for long-term growth. It has an impressive long-term expected earnings growth rate of 29.6%. You can see The complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for revenues in 2024 is $638.24 billion, representing a year-over-year increase of 11%. The consensus estimate for earnings in 2024 has been revised upward by 0.9% to $4.58 per share over the past 60 days. That number indicates year-over-year growth of 57.9%.

EPS Movement Chart

Image Source: Zacks Investment Research

However, AMZN is trading at a premium with a forward 12-month P/S of 3.05X compared to the industry’s 1.65X and above the median of 2.49X, reflecting a stretched valuation. While this could be seen as a risk, the premium is justified given the company’s strong capabilities across a range of verticals and high growth potential compared to traditional retailers.

P/S Ratio Chart F12M AMZN

Image Source: Zacks Investment Research