The Amazon [AMZN] share price gained 7.7% in the year to 7 September, closing at $3,509.29. As recently as 26 July, it was trading 13.6% above its level at the start of the year. However, the Amazon share price then fell dramatically, especially on 30 July when it dropped 7.6% in one day, following a disappointing earnings report.
The Amazon share price continued to tumble from there, bottoming out at $3,187.75 on 19 August, down 2.1% up in the year to date, before recovering over the following weeks. Investors have been chilled by the prospect of an antitrust investigation that could force Amazon to split in two if it is deemed to have become a monopoly.
These concerns have led Amazon to underperform the major benchmarks. The S&P 500 gained 20.3% in the year to 7 September, while the Nasdaq Composite gained 19.3%.
Despite this, the Amazon share price has outperformed its peers so far this year. The ProShares Online Retail ETF [ONLN]
, in which Amazon is the top holding with a 24.62% weighting as of 7 September, fell 5.4% in the year to date. In the trailing 12 months, the fund gained 15.8%, while Amazon gained 6.5%.
This year-long flatlining is a cause for concern for many investors. However, others are buoyed by the surge in the Amazon share price over recent days and could draw optimism from a new revenue stream that might see it increase its reach into the music space.
Amazon’s share price dip
Amazon doesn’t need to worry too much about its competition. Its moat is big enough to have Congress considering filling it, and Amazon accounts for more than 41% of all online spending in the US.
One aspect of Amazon’s share price dip following its earnings report in July that initially seems counterintuitive is that its reported online sales of $610bn beat those of Walmart [WMT]
, making Amazon the world’s largest retailer outside China.
Amazon is now a mature company, consciously shifting its priorities towards maximising value and generating cash flow. A disappointing earnings report will have impacted this.
However, Amazon’s share price is currently surging. The 7 September close is above its 50- and 200-day moving average, with volumes as well as price increasing from 26 August to 7 September. Reports also recently emerged that Amazon is putting wheels in motion for another revenue stream to complement Alexa and Amazon Music.
Axios reported on 31 August that Amazon is investing in a live audio feature similar to the likes of Twitter [TWTR]
Spaces and Spotify’s [SPOT]
new live offering. Amazon is said to be in touch with music companies about offering live audio events to artists, including concerts that customers could access through their Amazon Music accounts.
Clubhouse stock, which is down 23.6% year to date to the close on 7 September, rose 1.1% on 1 September following the announcement. Twitter’s share price rose 1.6%, while Spotify’s increased 1.7%. Apple [AAPL]
, another tech giant with a sizeable finger in the music pie, increased 0.4%. All outperformed the Nasdaq Composite, which increased 0.3% on the day, as well as the Amazon share price, which rose 0.24%.
Shyam Patil, an analyst at Susquehanna, has a $5,000 price target for Amazon’s share price and feels that now is an excellent time to buy the company’s stock. In a note to clients in August, he said: “Looking at the two-year compounded annual growth rates, trends are still very strong, and we see no reason to be concerned.”
Michael Lasser, an analyst at UBS, feels that Amazon is currently entering a “transition period” of slow online retail growth, but said that “if Amazon can keep its dominant position, it should keep seeing growth from the long-term secular trend of ecommerce”.
Amazon’s online growth is slowing: sales grew 12.6% over the most recent quarter compared to more than 40% a year previously, according to Marketwatch. Despite this, analysts are typically confident about the company’s prospects. While none of CNN Money’s panel posted a price target exceeding Susquehanna’s $5,000, the median target price of $4,105 is 17% above the 7 September close. Of the 49 analysts polled, 40 gave the stock a buy rating, with seven of the remainder recommending outperform and the final two hold.
Whether or not online retail can continue to grow as coronavirus pandemic recoveries continue will be key to Amazon’s future performance.
Disclaimer Past performance is not a reliable indicator of future results.
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