E Amazon: Buy For Growth, Not For Dividend Income

Amazon.com (AMZN) currently holds a market capitalization above $1.5 trillion, making it one of the most successful businesses in the history of the world. Amazon has taken over Internet retail, upending the entire brick-and-mortar retail industry in the process.

Not surprisingly, Amazon’s amazing growth story has made it a favorite holding of some major institutional investors such as Lone Pine Capital, a major U.S. hedge fund. Amazon has been one of the market’s premier growth stocks over the past decade, returning 35% a year on average over the past 10 years.

There are good reasons to buy Amazon, but investors should first understand that future returns will be driven entirely by a higher share price—not dividend income. Amazon is a high-quality business, but investors should not expect a dividend any time soon.

Business Overview

Founded in 1995 by Jeff Bezos, Amazon.com began as an online bookstore. Today the company has become one the world’s largest online retailers. In 2019 the company generated $280.5 billion in revenue, with approximately 57% from product sales and 43% from services. In addition, North America accounted for roughly 61% of sales, International markets make up 27% of sales, and Amazon Web Services (AWS) equaled about 12% of sales last year.

On July 30th, 2020 Amazon released Q2 2020 results for the period ending June 30th, 2020. For the quarter Amazon generated $88.9 billion in revenue, above prior guidance of $75 -$81 billion, representing 40.2% improvement compared to Q2 2019. This result was driven by a 40.1% increase in product sales and a 40.4% in service sales. Notably, service sales made up 43% of all revenue. Operating income equaled $5.8 billion, up from $3.1 billion in the year-ago period, and well above prior guidance of -$1.5 billion to +$1.5 billion. Net income totaled $5.24 billion or $10.30 per share compared to $2.63 billion or $5.22 in Q2 2019.

Amazon also provided guidance for the third quarter of 2020. The company expects Net Sales of between $87.0 billion and $93.0 billion, indicating 24% to 33% growth, along with Operating Income of $2.0billion to $5.0 billion. Clearly, Amazon is successfully navigating the coronavirus pandemic. If anything, it has benefited from the pandemic as consumers accelerate their spending to online channels while shying away from physical stores.

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Barry Glassman 9 months ago Member's comment

Dividend or no, you gotta love Amazon! $AMZN.