It’s no secret that many major stocks have fallen significantly from their highs. But it is strange to see him Amazon (AMZN -0.66%) And Shopify’s (store -7.71%) Stock prices are lower today than they were two years ago. Keep in mind that two years ago it was mid-May 2020 – a time when the extent of the COVID-19 pandemic was not widely known, unemployment was raging, and government support had yet to materialize.
That’s why these two stores of growth may be worth looking into now, despite the recent dips in stock prices.
Despite being one of the most influential and powerful companies in the world, Amazon stock is now 12% lower today than it was two years ago, and is down more than 42% from its all-time high.
Amazon is facing slower growth, inconsistent cash flow, and questionable profitability as it stays true to its old strategy of reinvesting in its business as much as possible. The strategy is high-risk in that Amazon’s growth needs to be large enough to justify the lack of profit. As of now, that wasn’t the case, and her shares were sold accordingly.
In 2012, Amazon generated $61 billion in sales and lost $39 million. 10 years later in 2021, Amazon had $470 billion in sales and $33.4 billion in revenue. This is a more than sevenfold increase in sales and a huge profit for a company that was losing money a decade ago. But here’s the catch: Amazon’s stock price rose nearly 18-fold between the start of 2012 and the first day of 2022. In other words, Amazon’s growth was reflected in its market capitalization, which increased from less than $100 billion in 2012 to more than $1.5 trillion. At the beginning of 2022.
What does all this history have to do with the Amazon region today? In order to support this $1.5 trillion valuation, Amazon must either maintain a high growth rate or offset the slower growth rate with better profitability and positive free cash flow. The problem now is that Amazon’s earnings growth is slowing and free cash flow is negative because the company is currently spending more money than it earns through business operations. This is a slippery slope in a market that is impatient with overspending.
However, the strength of Amazon Web Services (AWS), the company’s cloud computing infrastructure arm, should not go unnoticed. AWS Post 12-Month Revenue (TTM) is $67.1 billion and operating income is $20.9 billion, representing annual increases of 38% and 43%. You’d be hard-pressed to find a stand-alone software company the size of AWS that is increasing their sales and profits at such a rapid pace.
Simply put, the value of AWS alone is a good enough reason to collect Amazon shares for sale. Throw in the e-commerce business, Amazon Prime Video, and the continued growth of Amazon-owned services like Twitch, and you have a business built to last.
If there’s one growth stock in this market that reminds me of rough diamonds, it’s Shopify. The e-commerce stock now finds itself down more than 80% from its all-time high, down more than 50% in the past two years, and below its pre-pandemic price. This sale is shocking considering how much more attractive the Shopify business is today than it was two years ago.
However, it’s hard to ignore that investors outdid themselves by valuing Shopify with a market capitalization of over $200 billion before it matured into a company large enough to “earn” market capitalization. This kind of pattern has happened before. Looking back at the dot-com crash in the early 2000s, even stocks like Amazon were overvalued and down 93% from all-time highs. This wasn’t Amazon’s fault per se, but it was more than that due to the excessive enthusiasm of investors and their evaluation of the company for what it was can Not what it was at the time.
Today, Shopify’s growth is slowing. But make no mistake, the business is still growing revenue at a 20% surplus even as it lags behind its impressive 2021 results. Shopify generates just under a third of its revenue from the subscription solutions business, and it’s a monthly plan for Shopify services. The other two-thirds of revenue comes from the Merchant Solutions business, which are tools customers use to increase their sales. Shopify also takes a cut in Gross Merchandise Volume (GMV), which mainly flows through Shopify merchants. is similar to Visa or Master Card Credit Card – Both charge merchants when customers use credit cards – or PayPal , Which charges transaction fees, Shopify also takes a cut in sales. Therefore, it is not surprising that GMV makes up the largest share of Merchant Solutions’ revenue.
This dependence on GMV revenue leaves Shopify vulnerable to stagnation. If merchants go out of business or make fewer sales, Shopify makes less money. It’s the exact kind of business model that gets hit hardest during the economic cycle. But it’s also a business model built to stay. Shopify wins when its customers earn more money. So her interests align with helping customers grow their business as they upgrade their subscriptions and use more Shopify services.
Simply put, Shopify is in a position to grow as more businesses go online and consumers process more transactions online. Shopify’s integrated suite of tools is ideally suited to small and medium-sized businesses that lack the capital to stick with more expensive plans. But Shopify also offers flexibility so that client businesses can scale their spending over time. Unlike other ecommerce platforms aimed exclusively at small businesses, a business can start and grow with Shopify, and stick to the platform for its life.
Advance with caution
When stocks drop quickly from their highs, buyers may be too eager to pull the trigger. However, before first diving into an opportunity, take the time to understand the nuances of the business, including potential short-term conflicts and the biggest risks that can alter your investment thesis.
Bear markets take no quarter and have no patience for lackluster results. If Amazon and Shopify’s e-commerce business slides along with the broader economy, Wall Street may not hesitate to push stock prices even lower. But as long as the investment thesis remains the same, and Amazon and Shopify maintain their positions as e-commerce leaders, the sale should prove to be an excellent buying opportunity for long-term investors.