Amazon (AMZN -1.20%) needs no introduction. By now, every consumer knows the company even if they're not regular shoppers at the e-commerce giant. Investors are also likely familiar with the tech giant. Amazon has been one of the best-performing stocks over the last generation, and has established leading positions in two separate industries: e-commerce and cloud computing.
However, past performance isn't a guarantee of future success on the stock market, and Amazon faces a new set of challenges under CEO Andy Jassy, including navigating an increasingly dicey regulatory environment. So is the stock a buy today? To answer that question, we asked a bull and a bear to weigh in on the stock. First, we hear the bull case.
Image source: Amazon.
Amazon has options
Demitri Kalogeropoulos: Amazon checks a lot of boxes for growth-focused investors. Sure, the company's profit margin is closer to what you'd see from a retailer than from a successful tech giant. But profitability is rising today thanks to cost cuts and booming growth in the services segment. That division, anchored by Amazon Web Services, already accounts for more than half of Amazon's overall sales, and has room to keep rising in importance.
Cash flow has come surging back in 2023 after dropping into negative territory last year, which means management has the resources to put towards growth initiatives like generative artificial intelligence (AI). Amazon is improving core parts of its e-commerce business, too, for example by continuing to cut delivery times.
And the best news is that the stock isn't valued at a huge premium even after its rally in 2023. You can own Amazon shares for less than 3 times annual sales. That's a high for 2023, sure, but the valuation is still well below the highs that investors saw during the peak growth days in the pandemic. Those are great reasons to like Amazon stock in 2024 and beyond.
Problems are mounting
Jeremy Bowman: When Andy Jassy took over in 2021, he embarked on an unprecedented cost-cutting mission at Amazon. The tech giant cut roughly 28,000 corporate jobs, axed experimental products like its Scout home-deliver report and Amazon Care healthcare clinic, and even scaled back on seemingly promising initiatives like its cashier-less Amazon Go convenience stores.
Those decisions have paid off on the bottom line -- Amazon's profits soared in its third quarter, with operating income jumping from $2.5 billion to $11.2 billion year-over-year. But the cost cuts seem to have run their course.
Elsewhere, Amazon seems to have taken its eye off the ball. According to some surveys, Amazon's customer satisfaction scores have slipped as complaints about shipping delays, poor search results, and disappointing customer service seem to indicate the company is not as customer-centric as it once was. Meanwhile, a number of its rivals have stepped up their e-commerce efforts, and peers like Walmart and Shopify have routinely outgrown Amazon in e-commerce in recent quarters.
On the cloud computing front, Amazon is still the biggest cloud infrastructure player, but it is losing ground to competitors like Microsoft Azure. Amazon has been caught somewhat flat-footed in the new AI race, falling behind Microsoft and Alphabet.
Ordinarily, those challenges might not seem too daunting, but Amazon is running into the law of large numbers, meaning growth will get more difficult as its annual revenue is already approaching $600 billion a year. Additionally, the stock continues to trade at a premium, valued at a forward P/E of 62 based on 2023 estimates, and the company is currently embroiled in a Federal Trade Commission Investigation, which could restrain some of Amazon's reach and market power.
At this price, investors are baking in considerable growth even as the company's best growth days are likely behind it. Amazon isn't a terrible stock to own right now, and the company still enjoys a number of competitive advantages, but there are better places to invest considering the challenges facing the company.
