Tech and e-commerce giant Amazon (AMZN) is known for its online marketplace, although customers can access its offering through a range of channels including websites, mobile applications, Alexa devices, streaming and physical visits to stores.
The firm also makes and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo and Ring. It also develops media content and offers subscription services such as Amazon Prime.
Segments within the company include North America, International and Amazon Web Services. Since going public in 1997, the company has announced four stock-splits – the most recent being a 20-for-1 split of common stock effective from June 2022.
Investing in share-based investments produce higher returns than cash-based investments. However, your capital is at risk, your investment can go down as well as up, and you may not get your money back. If you are unsure as to the right investment, seek financial advice. Content is correct at the time of publication.
What’s the latest from Amazon?
These are Amazon’s performance figures from the first quarter of 2023, published on 28 April, 2023.
- First quarter 2023 revenues at $127.4bn, up 9% on Q1 2022
- Net income at $3.2bn, compared with $3.8bn loss in Q1 2022
- Operating income $4.8 billion, up 30% from Q1 2022
- Q2 sales forecast between $127bn and $133bn
Here’s what you need to know about buying and selling Amazon shares.
Start with research
Investors should carry out their own research before deciding whether to buy Amazon shares. A good starting point is the company’s investor relations page, which contains financial information, press releases and a calendar of upcoming announcements.
It’s also worth comparing Amazon’s valuation to other comparable US technology companies, including their relative price-earnings ratio. The price-earnings ratio is calculated by dividing the current share price by historic or forecast earnings (or profit).
Shares trading on a high price-earnings ratio have expectations of significant growth in future earnings. In other words, investors are willing to pay a higher price for these shares relative to their current earnings.
Another useful research tool is brokers’ 12-month share price forecasts, which are available on financial websites. There are currently 45 brokers following Amazon, and their price forecasts give an indication of the upside potential and downside risk in the company’s share price over the next year.
Investors should also consider their investment goals, including the amount and length of the investment. A long-term investment horizon of at least five years should enable investors to smooth out the returns from any downturn in stock markets.
Investors will also have exposure to foreign exchange risk when holding US shares. If the pound weakens against the dollar, as has been the case in the last year, US dollar denominated shares will be worth more in pounds sterling (and vice versa).
How to buy Amazon shares
Amazon shares can be bought on most trading platforms, although it’s worth comparing the options available as fees can vary significantly. Shares can be held in a general trading account, or in a tax-efficient wrapper such as an Individual Savings Account (ISA) or Self-Invested Personal Pension (SIPP).
Amazon is traded on the technology-focused Nasdaq exchange in the US under the ticker AMZN. The Nasdaq is open for trading from 9.30am to 4pm (Eastern time) from Monday to Friday. UK investors will also be requested to complete a W-8BEN form when trading in US shares.
Investors can place the trade by confirming either the number or total value of shares they wish to purchase. In addition to any trading and platform fees, investors will typically be charged a foreign exchange fee of up to 1% for buying US dollar denominated shares.
Monitoring the performance of Amazon shares
Most trading platforms allow investors to monitor Amazon’s live share price, with the option to add alerts if the share price moves above or below certain levels. This allows investors to make any adjustments, such as buying additional shares or selling part of their holding.
Investors might also want to compare the performance of Amazon shares to a benchmark such as the S&P 500 index, which tracks the share prices of the 500 largest companies on US stock markets.
Tracking an index enables investors to analyse whether price movements are caused by company-specific factors, such as results announcements, or wider stock market movements.
How to sell Amazon shares
As with buying shares, investors can sell their Amazon shares via their trading platform, with the option of selling part, or all, of their shareholding.
Capital Gains Tax (CGT) will be chargeable on any profit made, in other words, if the sale price exceeds the price paid for the shares. However, CGT will not be charged on shares held in tax-exempt wrappers such as ISAs and SIPPs.
Investors currently have a CGT allowance of £12,300 in the current tax year (2022/23), meaning that tax will only be charged on gains above this level.
How to invest in Amazon indirectly
Holding shares in an individual company such as Amazon is a higher-risk option due to the potential to make losses if the company underperforms. Another option is to invest in a diversified portfolio of shares that holds a range of other shares, in addition to Amazon itself.
Funds, investment trusts and exchange-traded funds (ETFs) offer a ready-made portfolio of shares in different companies, with two main options:
- Passively-managed funds and ETFs that aim to replicate the performance of an index such as the S&P 500 or Dow Jones US Technology Index. Passive funds typically charge investors an annual management fee of 0.1% to 0.2%.
- Actively-managed funds and investment trusts where the fund manager aims to ‘beat the benchmark’ by active stock-picking. As a result, they usually charge a higher annual management fee of 0.5% to 1.0%.
Frequently Asked Questions
What is a trading platform?
A trading platform allows investors to buy and sell shares and other investments directly, rather than indirectly through a financial adviser. It is also referred to as a DIY investment platform, share trading account or online brokerage account.
A trading platform provides the software for investors to buy and sell investments online, and may also offer telephone and app-based dealing. This allows investors to view and monitor their portfolio in real time and make any necessary investment decisions.
Can investors buy Amazon shares in the UK?
Most trading platforms allow investors to purchase Amazon shares when the Nasdaq is open for trading. The following fees are usually charged by trading platforms when buying US shares:
- Share trading fee: platforms may charge a slightly higher trading fee of up to £10 for buying US (rather than UK) shares, although some platforms offer zero-commission trading fees.
- Foreign exchange fee: a foreign exchange fee of around 0.5% is typically charged, although it can range from 0.15% to 1.5%. Some platforms allow investors to hold their trading accounts in US dollars to reduce foreign exchange fees.
- Platform fee: this is an annual fee on the value of investments held on a trading platform. Platform fees typically vary from 0.25% to 0.35%, although this may be subject to an annual cap (or maximum). Some platforms charge no platform fee while others charge a flat fee.
Investors buying US shares will also be asked to complete a W-8BEN form. This allows them to benefit from a reduction in withholding tax from 30% to 15% for qualifying US dividends.
How can beginners buy Amazon shares?
Buying shares in Amazon is the same process as for beginner investors buying shares in any US company. This process is set out on a step-by-step basis in the “How to buy Amazon shares” section above.
How much does it cost to buy an Amazon share?
As of the date of publication (22 November), it costs $92.46 to buy one Amazon share, although the price has ranged from $86 to $188 over the last year.
Amazon carried out a 20-for-1 share split in June 2022, having hit a share price of $2,785 before the split was announced. Stock splits make the company more attractive to smaller investors by reducing the minimum purchase amount, although some trading platforms may allow investors to buy fractional shares.
Is Amazon stock a long-term buy?
Looking ahead, inflationary pressures on the cost of living are likely to have an impact on consumer spending on both retail purchases and subscription services such as Amazon Prime. However, Amazon’s leading position in cloud services may continue to drive revenue and earnings growth.
It also remains to be seen whether the increase in annual membership cost for Amazon Prime will have an impact on subscriber numbers. The company is also trialling drone deliveries to Prime customers in the US later this year, together with rolling-out Amazon Fresh grocery stores across the UK and the US.
According to WSJ Markets, the analysts’ 12-month share price forecasts range from $80 to $170. At the current share price of $98, this suggests more potential upside than downside although this is difficult to predict given the uncertain economic outlook.
Can I invest monthly in Amazon?
Investors could either buy Amazon shares as a one-off, lump-sum or drip-feed their investment on a monthly basis over a period of time.
Monthly investing is often described as ‘pound cost averaging’ as it helps to smooth out peaks and troughs of the stock market. If there is a sustained fall in the company’s share price, investors benefit from buying shares at lower prices which reduces their average purchase price.
However, drip-feeding investment may sacrifice capital growth if the share price is rising and may incur additional share trading fees.
What is a stop loss?
Some platforms allow investors to add a ‘stop loss’ after buying shares, which enables investors to limit losses if the share price falls.
For example, if an investor buys Amazon shares at $100, and sets a stop loss of $90, their shares would be sold if the share price falls below $90. This should limit their maximum potential loss to 10%.
