There are many reasons to consider buying Amazon.Com Inc (NASDAQ: AMZN) stock, one of the largest businesses in the world. Here are two reasons I would consider buying Amazon stock in 2019.
About Amazon
Amazon.Com is one of the world’s largest businesses, having started from humble beginnings in the late 1990s by Founder Jeff Bezos selling books online. In 1997, Amazon served 1.5 million customers.
Today, Amazon serves hundreds of millions of customers through its global e-commerce stores, millions via its AWS cloud server business and touches many more with its technology (e.g. Prime Video, Echo, Kindle).
In its 2018 financial year, Amazon generated net sales of $243 billion and reported a net profit of $10 billion, up 31% and 200%, respectively.
1. Balance Sheet
One of Amazon’s biggest strengths is its balance sheet and cash flow. A common way to value a business is a discounted cash flow (DCF) analysis, which the video below explains in more detail.
Amazon produces incredibly strong cash flow and it continues to improve every year. In 2014, Amazon’s net cash provided by operating activities was $6.97 billion. In 2018, it was $30.72 billion. Over the same time period, Amazon’s assets have grown from $53.6 billion to more than $162 billion.
As of 31st December 2018, Amazon held cash and cash equivalents of $31.75 billion. While Amazon has increased its cash flows and cash holdings, it has also reduced long-term debt. Based on Amazon’s balance sheet and cash flows, it looks like they’re ready for anything.
2. Diversification
Amazon is also a highly diversified business. In 2018, North America accounted for approximately 60% of Amazon’s net sales, however, the international growth rate is far higher than the North American growth rate, meaning over time Amazon relies less and less on the North American market.
In terms of products, Amazon sells a wider range of products than just about any other company. Amazon Web Services (AWS) has a huge range of applications including analytics, augmented reality, virtual reality, customer engagement, machine learning and storage.
Amazon began as a book store and has turned into a business that sells everything. The company has proven its ability to consistently adapt and diversify into the highest growth sectors and businesses. With the resources Amazon has available, that makes for quite the competitive advantage.
Summary
While these are two reasons to consider buying Amazon stock, keep in mind that there are a whole host of risks including competition, regulatory risks and foreign exchange risk. Before investing, it’s important to read through all of the risks mentioned in Amazon’s 10-K Annual Report and do your own valuation.
For quality businesses closer to home, check out the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
