Thinking of Buying Amazon Stock? Here's 1 Green Flag and 1 Red Flag.

Core Insights - Amazon is evolving beyond its traditional e-commerce identity, developing a multi-faceted empire that includes cloud computing, advertising, and entertainment [1] - The company's e-commerce growth is slowing, with North America segment sales increasing by only 8% year-over-year and international segment revenue growing by just 5% [4] - Amazon's core commerce revenue, excluding advertising and subscription revenue, grew at around 5% to 6%, indicating a maturing business [4] - Despite net sales reaching $126 billion in Q1 2025, Amazon's operating profit was only $6.8 billion, resulting in a margin of 5.4%, which is low for a tech giant [5] - Increased competition from low-cost challengers like Temu and Shein is putting pressure on Amazon's e-commerce segment [6] - Amazon is enhancing its logistics network and launching low-cost e-commerce initiatives to compete effectively [7] Advertising Growth - Amazon's advertising business is experiencing significant growth, with ad revenue increasing by 18% year-over-year to $13.9 billion in Q1 2025 [9] - The advertising segment is high-margin, potentially contributing more to Amazon's bottom line than its retail business [9] - Unique advantages of Amazon's advertising include reaching customers at the point of purchase, leading to higher conversion rates compared to other platforms [10] - The introduction of ads in Prime Video has expanded Amazon's advertising reach, making it one of the largest ad-supported streaming platforms globally [11] - Amazon's closed-loop attribution model allows brands to track the effectiveness of their ads throughout the customer journey, providing valuable insights [12] Investment Implications - Amazon's long-term profit potential is shifting towards high-margin businesses like cloud computing and advertising, with the latter gaining momentum [13] - While retail faces challenges, stabilizing the commerce segment while leveraging faster-growing areas could lead to stock appreciation over time [14] - Understanding the growth dynamics within Amazon's various segments is crucial for assessing the company's future prospects [14]