Amazon.com (AMZN) Delivers Strong Quarter as AWS Growth Was a Standout

Stock (Symbol)

Amazon.com (AMZN)

Stock Price

$176

Sector

Data is as of

Expected to Report

Company Description

Amazon.com provides a range of products and services to customers.

The products offered through its stores include merchandise and content that it purchased for resale and products offered by third-party sellers.

It also manufactures and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo, and Ring, and it develops and produces media content.

It operates through three segments: North America, International and Amazon Web Services (AWS). The AWS segment consists of global sales of compute, storage, database, and other services for start-ups, enterprises, government agencies, and academic institutions.

It provides advertising services to sellers, vendors, publishers, authors, and others, through programs, such as sponsored advertisements, display, and video advertising.

It serves consumers through its online and physical stores.

Customers access its offerings through websites, mobile applications, Alexa, devices, streaming, and physically visiting its stores. Source: Refinitiv

Sharek’s Take

Last quarter, Amazon (AMZN) beats off the estimates and delivers a strong performance with Amazon Web Services as the real standout of the quarter. Amazon delivered  profit growth of 97% and beat estimates of just 57%, while revenue growth was 11%. Amazon Web Services (AWS) standout as AWS sales grew 19% year-over-year, compared to a 9% gain in North America and 7% with International retail. AWS sales growth has accelerated during the past four quarters from +12% to +13%, +17% and now +19%. Management stated three macro trends are driving AWS growth:

1. First, companies have largely completed their cost-cutting efforts.
2. Second, customers are now investing in modernizing their infrastructure and moving to the cloud.
3. Third, businesses are eager to leverage AI, with Amazon’s AI division experiencing rapid growth. AMZN’s AI includes:
   • SageMarket for constructing models.
   • Bedrock for utilizing other people’s models.
   • Trainium chips for AI training with up to a 50% savings over other instances.
   • Inferentia chips to generate AI inferances more quickly at up to a 40% lower cost.
   • AMZN sees inference comprising up to 90% of infrastructure spend for developing and running machine learning applications.
   • Q for a capable AI assistance for software development as well as business integration.

Founded in 1994, Amazon serves customers through its online and physical stores with a focus on selection, price, and convenience. The company with more than 1 million full-time and part-time employees work to deliver hundreds of millions of unique products that are sold by Amazon itself and third-party sellers. Amazon Prime, with roughly 200 million households, is the company’s membership program that includes free same-day, one-day and two-day delivery options. Amazon also makes and sells electronic devices including Kindle, Fire tablet, Fire TV, Echo, and Ring. In 2006, Amazon Web Services was born when the company launched Amazon Elastic Compute Cloud, a web service that provided re-sizable compute capacity on the cloud to make web-scaling easy for developers. This reduced the time required to obtain a new server to minutes, and changed the economics of computing by allowing customer to pay only for the capacity they use. In 2017, Amazon acquired the Whole Foods grocery chain, and in 2019 Amazon Fresh home delivery became a free Prime benefit.

Let’s take a look at each segment with last qtr’s results:

• North America (retail); 61% of the total revenue.
  • Revenue growth of +9%, down from 12% 2QtrsAgo.
• International (retail); 21% of the total revenue.
  • Revenue growth of +7%, down from 10% 2QtrsAgo.
• Amazon Web Services; 18% of the total revenue.
  • Revenue growth of +19%, up from 17% 2QtrsAgo.

AMZN stock has been a warrior recently, as expanding profit margins are giving the company rapid profit growth while profit estimates rise. But estimates didn’t rise this qtr, which concerned investors and caused a slight selloff in the stock. This quarter, the stock has a P/E is 39 with a a plump Estimated Long-Term Growth Rate of 31%. Amazon is part of the Growth Portfolio and Aggressive Growth Portfolio.

One Year Chart

AMZN stock corrected a bit after earnings and has since bounced back. Yes, 

What’s pushing the stock higher is that the quarterly profit growth has been exceptional in the past four quarters. Now, quarterly profit growth is expected to slow down in the coming quarters.

The Estimated Long-Term Growth Rate remained at 31% since last quarter. I think 31% is a good guess as what profits could climb at during the next 3-5 years.

The P/E of 39 is reasonable. My Fair Value is a P/E of 50.

Earnings Table

• North America Operating margin was 5.6%, up from 3.9% year ago.
• International Operating Margin was 0.9%, up from -3.0% year ago.
• AWS Operating margin was 35.5%, up from 24.2% a year ago.

Annual Profit Estimates only increased for this year. 2025 and 2026 figures are reduced. Here are profit estimates for upcoming years:

2024: $4.73
2025: $5.81
2026: $7.33
2027: $8.96
2028: $10.86

Quarterly estimates moved up too. Qtrly profit Estimates are for 21%, 35%, 37%, and 10% profit growth the next 4 qtrs. For next quarter, management expects revenue to grow between 8% to 11%. Analysts think AMZN revenue will grow 10% next quarter.

Fair Value

My Fair Value P/E stays at 50. That gives the stock 29% upside to my 2024 Fair Value  of $227 a share

Note 2025’s upside is an exceptional 66%. But I imagine I’ll reducee my Fair Value P/E multiple by then.

Bottom Line

Amazon (AMZN) had been a terrific stock to own historically. But the stock was a dog in 2022 as the company lost money that year. The stock has since come roaring back as management focused on profit margins.

I see continued momentum with this stock as profits continue to be strong. 

AMZN moves up from 6th to 4th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.

Power Rankings

4 of 32

Aggressive Growth Portfolio

4 of 15

Conservative Stock Portfolio

N/A