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Trading Amazon Stock
Amazon was founded on the 5th of July 1994 by Jeff Bezos as an online bookstore, with start-up capital of $250,000 from his parents. Within a couple of months, the business was already generating revenues of $20,000 per week. In October 1995, Amazon announced itself to the public and in 1996, was reincorporated in Delaware.
Less than 1 year later, Amazon held its IPO (initial public offering) on the 15th of May 1997, trading under the ticker AMZN on the NASDAQ exchange at a price of $18 per share.
Today, Amazon is headquartered in Seattle, Washington and is now the largest ecommerce and cloud computing company in the world, both in revenues and market capitalisation. This has made Amazon stocks one of the most sought after by investors worldwide.
Recognised as a continually innovative company, Amazon investors can be confident that this will propel the company to maintain its competitive edge.
When it comes to acquisitions, Amazon has traditionally been a conservative buyer with few acquisitions compared to its tech competitors. This has, however, been changing in recent years with Amazon completing at least 10 acquisition deals.
To date, its most notable acquisitions have been Whole Foods ($13.7 billion); Ring ($1,8 billion), which is a smart doorbell maker; Kiva Systems ($775 million), a robotic fulfilment system manufacturer; Zappos ($1.2 billion), online shoe and clothing retailer; and PillPack ($1 billion), a full-service pharmacy that packs and does door to door delivery.
When Amazon went public, they started trading at $18.00 per share. Since then, the company has had 3 stock splits: 2-for-1 on 2nd June 1998; 3-for-1 on 5th January 1999; and finally, 2-for-1 on 1st September 1999. This puts the split-adjusted initial public offering of the Amazon stock price at $1.50 per share.
Amazon has witnessed tremendous growth over the last decade, rising from below $80 during the financial crisis in 2008, to ~$2,000 per share 10 years later. To put that growth in perspective, a $1,000 investment in 2008 would now be worth over $23,000 at current market prices for the Amazon stocks.
With regards to dividends, Amazon has never declared or paid cash dividends to their common stockholders. The tech giant also does not currently offer a Direct Stock Purchase Plan.
The question that many people ask, is why would investors be interested in a non-dividend paying stock? The first incentive would be the increase in the value of the stock. Generally, non-dividend paying stocks usually increase in value at a faster rate than dividend paying ones.
Another benefit would be the avoidance of double taxation. Investors are effectively shielded from paying tax until they decide to sell their shares. Many companies that do not declare dividends usually reinvest a large chunk of their profits in R&D and launching new projects that may provide even higher value for investors in the long run.
In Amazon’s case, the high share price means that any meaningful dividend payout could be very costly for the company and would get in the way of other major concerns, such as the current pursuit of high quality acquisitions, investment in on-going operations and the paying off of debt.
Amazon relies on its continuously growing stock value to keep its investors happier rather than paying dividends. And they could be right; as Amazon shares are one of the most attractive for investors.
How to Trade Amazon with CFDs
On Wall Street, the general consensus is that Amazon is a high value stock with very good prospects for the future. Still, stock prices never move in a linear manner, even on the Amazon stock trading chart. Here are the factors to consider when trading Amazon stock:
- Tariffs and Trade agreements
Amazon.com operates as a marketplace where most sellers operate using a drop shipping model or Amazon FBA (Fulfilment by Amazon) to make their products available in the North American market. Many sellers, acquire or have their products manufactured in cheaper jurisdictions, such as China. They then ship them to the US to make them available for sale online. It is a fairly straightforward model, but changes in tariffs and trade agreements between the major nations can impact the sellers’ costs and consequently, their margins. If it results in losses for sellers, Amazon.com may incur a hit on their revenues.
- Competitor’s Performance
Amazon operates in high growth industries, and this naturally attracts high profile competitors. In the ecommerce segment, Amazon.com faces competition from companies such as Alibaba, Otto, eBay and Flipkart. Its heavy presence in retail also attracts competition from dominant offline retailers such as Walmart, Costco, Target, Kroger and Home Depot. In the online media streaming segment, Amazon Prime Video faces competition from Netflix and Apple stocks iTunes and in the enterprise cloud hosting sector, giants like Microsoft and Google. These are all strong competitors and it is always sensible to assess their performance in relation to that of Amazon.
- New Product/Services Rollout
As stated earlier, Amazon is a highly innovative company with the funds and capabilities to launch new products, or even make new acquisitions frequently. It is important to assess how these acquisitions will impact on its bottom line, both in the short term and in the long run. In recent years, consumer electronics have been performing admirably, but investors should also pay attention to moon-shot projects that could have an even bigger impact on the stock in the future.
- Periodical Earnings Reports
Amazon’s fiscal year goes in tandem with the calendar, which means that it ends on December 31. It is important to get a look at its quarterly earnings reports so as to establish how the different business units are performing, as well as get a global view of future business prospects. While many traditional investors would want to take a long-term view on stocks, it is vital to watch these mentioned factors with a short and medium-term focus in mind. This can help investors to pick out high quality trading opportunities with the chance of earning profits within a shorter period of time too.
Why Trade Amazon Stock CFDs with AvaTrade Australia?
- AvaTrade is an award winning regulated forex broker. Our trading services are transparent and our clients’ funds and personal information are secured with the latest security technologies.
- Take long or short positions on Amazon stock depending on the direction that the market is trending.
- At $2,000+ a share, Amazon stock tends to be out of reach for many retail investors. AvaTrade offers CFDs and leveraged trading of up to on CFDs, which gives investors the unique opportunity of trading Amazon CFDs with a low capital outlay. At AvaTrade investors can open positions and take advantage of the Amazon stock trading with as little as a deposit.
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Amazon Stocks Trading Main FAQs
- What should I know about Amazon?
Amazon is included in the FAANG stocks, and even though many think of it as a tech stock because it operates online, it is primarily a consumer retail stock. Amazon has turned itself into a more than $1 trillion market cap business by excelling and dominating each niche it has participated in. Currently it is doing that in the cloud computing niche, which does make Amazon somewhat a tech play. Since its debut in 1997 at $1.50 Amazon’s stock has gained over 18,000%, making it one of the best long-term performers ever.
- Is Amazon a good stock to trade?
Aside from a huge dip in 2018 Amazon has been on an almost non-stop upward trajectory. That doesn’t mean just buying the stock randomly will always result in profits. Traders still need to wait for dips in the share price for good entry points. Amazon shares are also sensitive to earnings news each quarter, so trading around the earnings season can lead to good performance if the trader correctly identifies the direction the stock will take.
- What is the best strategy for trading Amazon?
Because Amazon shares have tended to trade steadily higher over the more than two decades since the company went public it is best to trade shares in the long direction. Shorting Amazon introduces excessive and unnecessary risks. Instead traders are encouraged to take a swing trading approach that trades Amazon’s upward trendline, buying when prices touch the trendline and selling several days later to collect the move higher off that trendline. While it isn’t precisely a trend following approach, it does take advantage of Amazon’s tendency to trend higher.
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