Amazon began its life as an online bookstore retailer, but it has since grown into one of the biggest technology companies in the world: a trillion-dollar e-commerce behemoth that, with its investment in streaming, AI, cloud technology and tablets, infiltrates almost every part of our lives.
Led by billionaire Jeff Bezos, Amazon (AMZN) is one of the Big Five US IT companies, alongside Google (Alphabet), Apple, Meta (Facebook), and Microsoft. It launched in Australia in 2017, following up with its two-day delivery service, Amazon Prime, the following year.
However, there have been challenges along the way, most notably the lacklustre reaction to Amazon’s recent 20-for-1 share split on the first day of post-split trading in June, with its share price rising by 2% before falling back on subsequent days.
Overall, Amazon’s share price has fallen by nearly 13% since the stock split was first proposed in March.
Before the split, Amazon’s share price had topped $US2400, prompting affordability fears for smaller retail investors. The aim of the split was to make Amazon’s shares more accessible to a wider investor base by increasing the number of shares and therefore reducing the price per share. Each shareholder on record at the close of business on 27 May was given 19 additional shares for each Amazon share held.
(It will be interesting to see the outcome of similar share splits planned for the next few months by Tesla, Alphabet and Shopify).
While Amazon’s lower share price might attract new investors, concerns remain over the company’s outlook for 2022 and beyond. Amazon recently announced its first quarterly loss since 2015, due to the impact of high inflation on its cost base and war in Ukraine. Amazon’s reported loss per share of $US7.56 was a shock given the consensus analysts’ estimates of positive earnings per share of $US8.36, according to market data provider Refinitiv. A key contributor to the $US3.8 billion net loss was the $US7.6 billion write-down in the value of Amazon’s investment in electric carmaker Rivian, whose shares have plummeted by nearly 70% since its flotation last November.
Amazon’s first-quarter revenue of $US116.4 billion was broadly in line with market expectations. However, its year-on-year revenue growth rate of 7% marked the second consecutive quarter of below double-digit growth and its lowest quarterly growth rate in nearly 20 years.
As with Alphabet (Google) and Meta, Amazon attributed the slowdown to challenging macroeconomic conditions. It has decreased its revenue estimates to $US116 to $US121 billion for the current quarter, which would reduce revenue growth to 3-7%.
Amazon has also faced rising shipping costs, with international container shipping rates doubling since the pandemic and the war in Ukraine increasing fuel costs. Amazon is taking measures to offset its rising costs. It recently announced a 5% “fuel and inflation surcharge” to the fees charged to third-party sellers using Amazon’s fulfilment services.
The firm benefitted from the rise in online shopping during the pandemic but is facing a stiffer challenge due to the inflationary environment and continued supply chain constraints.
Here’s what you need to know about buying and selling Amazon shares
Why buy stocks?
It’s worth asking yourself why you want to buy shares. Are you looking for capital growth, income from dividends or a combination of both? Your investment objectives will determine what type of shares you invest in, whether high-growth technology shares or more defensive companies with a reliable dividend stream.
Most investors look for sound fundamentals, including a track record of consistent earnings growth, a strong market position or products or services with future growth potential. These should provide a solid platform for future share price growth.
That said, other factors such as takeover rumours can drive up a company’s share price. Investors may also be attracted by recovery plays, with a depressed share price providing the potential for a rebound.
How to buy stocks from Australia
Once you’ve decided which company to invest in, there are several steps to buying shares.
1) Open an account
Whether you’re a seasoned share trader, or new to stock market-based investments, you’ll need to open an account with a regulated brokerage to buy shares in Amazon.
Stockbroking is a competitive market place and services for DIY investors come in a range of guises – from online investing platforms run by some of the biggest names in financial services, to investment trading apps that work off your smartphone or tablet.
Before opening an account, bear in mind the following:
- Keep your ultimate financial goals in mind
- Be prepared to ride out stock market ups and downs
- Aim to keep trading costs to a minimum
- Remember that share investing can prompt tax charges, for example, when selling part of your portfolio, unless you use a tax-efficient wrapper such as an ISA.
And before buying any shares, it’s worth asking yourself these questions:
- Should I take financial advice?
- Am I comfortable with the level of risk in question?
- What’s my investing budget?
- Can I afford to lose money?
- Do I understand the company in which I’m looking to invest?
- Am I protected if my platform provider/adviser goes out of business?
2) Where is Amazon traded?
The ticker symbol for Amazon Inc is AMZN. It is listed on the technology-focused Nasdaq exchange in the US, which is open for trading from 9.30am to 4pm (Eastern Time). You should be able to buy US shares through most brokerage accounts.
Buying shares in US dollars incurs a foreign exchange fee (typically around 1%) unless you fund the purchase from a US dollar account.
Most brokerages also charge a slightly higher transaction fee for buying US, rather than Australian shares, although it’s worth comparing the fees charged by different brokers if you plan to trade US shares regularly.
You will be asked to complete a W-8BEN form (valid for three years) which allows you to benefit from a reduction in withholding tax. Under the Double Tax Agreement between the US and Australia, you may be entitled to a reduction from the 30% withholding tax rate to 15%.
Share dividends are taxed in the US. As a result, US companies must withhold and pay 30% of share dividends to the US Internal Revenue Service (IRS), which you may be able to claim when preparing your Australian income tax return as part of a foreign income tax offset (FITO).
However, as each case varies, it’s worth speaking to a dedicated tax agent on what your individual financial position is likely to be.
As with Australian shares, any overall profit on US shares will be subject to Capital Gains Tax.
3) Do your research
To find out more about Amazon, visit the company’s online investor relations page.
It’s also worth comparing Amazon’s valuation to other comparable US technology companies. One way of doing this is to look at the relative price-earnings ratios – shares trading on a high price-earnings ratio have high expectations of substantial future growth.
Another useful research tool is brokers’ 12-month share price forecasts, which are available on financial websites. There are currently nearly 50 brokers following Amazon shares, and their price forecasts give an indication of the upside and downside potential of the Amazon share price over the next year.
4) What’s your investing strategy?
People tend to invest in one of two ways: either with a lump sum purchase, or via smaller, steadier amounts over time.
The latter method is often referred to as a means of ‘dollar cost averaging’, a stock market hack which helps you pay less per share on average over time in falling stock markets. Rather than waiting to build up a lump sum, it means an investor’s money can be put to use in the market straightaway. However, drip-feeding your investment may sacrifice capital growth if the share price is rising and you will also pay more in share-trading fees.
5) Place an order
Once you’re ready to buy shares in Amazon, log in to your investing account or trading app. Type in Amazon’s ticker symbol (AMZN) and the number of shares you want to buy or the amount of money you’re prepared to invest.
Many brokerages also allow you to add a ‘stop loss’ once you have bought the shares, which allows you to limit your losses if the share price falls. For example, if you buy shares at $10, and set a stop loss of $9, your shares would be sold if the share price falls below $9, limiting your potential loss to 10%.
6) Review Amazon’s performance
Whether your share portfolio is crammed full of companies or holds only a handful of stocks, it’s vital you review how each component is performing on a regular basis: monthly, quarterly, or annually.
Doing this gives you the opportunity to review performance and ask if any adjustments to your holdings are required – to maintain the status quo, buy more stock, or sell existing shares.
How to sell stock
At some point, you will want to sell your holdings. To do so, log in to your investing platform, type in the ticker symbol (AMZN) and select the number of shares you want to sell.
If you’ve made an overall profit, you will be liable to pay Capital Gains Tax (CGT) when you sell your holdings under Australian law. If you have owned the sharers for less than 12 months, you will have to pay 100% of the value of your capital gain at your applicable income tax rate—talk to your accountant about this.
However, if you have owned the shares for longer than 12 months, you will only need to pay 50% of the capital gain under Australia’s CGT discount rules.
How to invest in Amazon via a fund
Investing directly in individual stocks can be an absorbing and, hopefully, profitable experience. It may also qualify you for shareholder perks specific to the company in question.
Investing directly in individual companies can, however, leave you vulnerable to stock market volatility and unforeseen swings in share prices.
That’s why financial experts recommend that most people invest in a diversified mix of asset classes and funds that hold a ready-made portfolio of upwards of fifty different company shares.
Being a major component of the Nasdaq index, Amazon is found in many global and specialist technology funds and investment trusts, as well as tracker-style Exchange Traded Funds (ETFs).
Note: investing in companies comes with no guarantees. When buying company shares, it’s possible to lose some, and very occasionally all, of your money. Past performance is no prediction of future performance and this article is not intended as a recommendation of any kind.