Amazon's stock price on its 25th anniversary shows the potential of investing early in game-changing companies that become consumer favorites
- Amazon was founded 25 years ago today, on July 5, 1994. The company was the second in the US to hit a market capitalization of $1 trillion in 2018, but had a long road to that success.
- Early investors would've seen disappointing returns for the first decade of Amazon's performance as a public company.
- The company is a cautionary tale for investors looking to cash in on banner IPOs coming to market this year. Industry watchers say it's better to invest in companies you believe in for the long haul.
- Read more on Markets Insider.
When Amazon first listed shares on a public exchange in 1997, a crisp $20 bill would've bought a share in the company.
Today, that same share is worth nearly $2,000.
Amazon was founded 25 years ago Friday, although it didn't go public until a few years after its inception. Still, early investors in the company would have a fortune today if they held onto shares over the last two and a half decades.
The anniversary comes during a banner year for new initial public offerings as companies such as Lyft, Uber, and Chewy have all rushed to the public market, many hoping to disrupt a major industry the way Amazon has. In addition, investor interest in IPOs has been piqued by companies like Beyond Meat, whose shares have gained as much as 700% since it first listed in May. Although Amazon has had astronomical growth and in 2018 became the second company to hit a market capitalization of $1 trillion -Apple was the first- it had a long and sometimes bumpy road to success.
The tech company's stock made its public debut at $18, and early investors might've been disappointed by its performance for the first decade of its life on the public market. Shares struggled to make meaningful gains through the early 2000s as the dot-com bubble burst. But that fate began to turn in 2008 and 2009, when momentum in the stock started to pick up and send it on an upward trajectory. That momentum increased even more in 2014 - in the last five years, the stock has gained more than 460% to $1,938 from about $340 per share.
Today, Amazon has something of a cult following, where it garners more attention than other competitors. This is usually due to having a charismatic CEO like Elon Musk or Jeff Bezos, Rory Carron, the head analyst at MyWallStreet, an investing app, told Markets Insider.
A bonus just for you: Click here to claim 30 days of access to Business Insider PRIME
Leadership is important in assessing the success or failure of a young company. It's important to look at senior leadership, the plan they present for future growth, and their ability to execute that plan, John Jacobs, executive director of the Georgetown Center for Financial Markets and Policy and the former chief marketing officer of Nasdaq, told Markets Insider.
But leaders aside, the most successful investors are the ones who can pick investment vehicles to go along with sustained trends, said Carron. For example, Amazon was an early player in e-commerce, a trend that now dominates many industries from retail and beyond.
Where investing in IPOs can be difficult is when investors get swept up in something that's only popular short term.
"People aren't very good at separating fads from sustainable trends," Carron said. For example, when Pokemon Go, the artificial intelligence driven mobile game, was popular, investors piled money into shares of Nintendo, Carron said. What those investors didn't realize right away was that Nintendo had only a small hand in the game, and the game would have little impact on Nintendo's performance as a company, said Carron.
Generally, Carron advises that investors make sure they do their research before investing in any company, but especially IPOs. There's usually a bit of a frenzy around IPOs because when a company becomes public, it's the first time the majority of investors get to look at it, Carron said.
"That's always going to create excitement in the markets," said Carron. What Carron suggests is that investors look to buy into companies where they understand both the consumer value and the financial basics - how the company makes money, what its potential growth opportunities are, and what the competitive landscape looks like.
Ultimately, investors need to be confident that the new company they're investing in is going to grow at a faster rate than expected, or it's going to unlock potential that people don't currently understand.
"That's when you understand a business and can be comfortable holding it for the long term," Carron said.
Shares of Amazon are trading up roughly 29% year to date.
Now read more markets coverage from Markets Insider and Business Insider:
