Amazon.com (AMZN) Profitability Surges as Margins Expand & AWS Delivers AI

Stock (Symbol)

Amazon.com (AMZN)

Stock Price

$200

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

• North America clocked in with 5.9% operating margin last qtr compared to 4.9% year ago.
• International had 3.6% operating margin compared to -0.3% year ago.
• AWS delivered 38.1% operating margin compared to 30.3% year ago.

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. Today, AWS’s AI business is doing billions annuallly and is growing at a triple-tigit rate. AMZN even has AI chips that have better price perfoamance for AI workloads than NVIDIA (Tranium for training and Inferntia for inference).

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

• North America (retail); 60% of the total revenue.
  • Revenue growth of +9%, same as 2QtrsAgo.
  • Operating income was $5.7 billion, compared with an operating income of $4.3 billion in year ago period (+31%).
• International (retail); 23% of the total revenue.
  • Revenue growth of +12%, down from 10% 2QtrsAgo.
  • Operating income was $1.3 billion, compared with an operating loss of $0.1 billion in year ago period (+1400%).
• Amazon Web Services; 17% of the total revenue.
  • Revenue growth of +19%, same as 2QtrsAgo.
  • Operating income was $10.3 billion, compared with operating income of $7.0 billion in year ago period (+50%).

AMZN stock has been a warrior recently, as expanding profit margins are giving the company rapid profit growth while profit estimates rise. This quarter, the stock has a P/E is 33 with a plump Estimated Long-Term Growth Rate of 33%. Amazon is part of the Growth Portfolio and Aggressive Growth Portfolio. Profits jumped 52% last qtr and analysts estimate growth of 47% and 40% the next two qtrs, so I think the stock will continue to trend higher.

One Year Chart

This is a beautiful chart pattern. I like that the shares are around $200. 

Quarterly profit growth was expected to be 21% last qtr, and the company came through with 52%. Notice profits are expected to climb at least 40% the next two qtrs. My guess is +50% profit growth should continue.

The Estimated Long-Term Growth Rate increased to 33% from 31% 2QtrsAgo. That’s a BIG number for a large company like this. Mutual funds can put some money to work here.

The P/E of 33 is reasonable. My Fair Value is a P/E of 50.

Earnings Table

• North America Operating margin was 5.9%, up from 4.9% year ago.
• International Operating Margin was 3.6%, up from -0.3% year ago.
• AWS Operating margin was 38.1%, up from 30.3% a year ago.

Annual Profit Estimates increased this quarter. Here are profit estimates for upcoming years:

2024: $5.08
2025: $6.06
2026: $7.55
2027: $8.97
2028: $10.41

Quarterly estimates moved up too. Qtrly profit Estimates are for 47%, 40%, 12%, 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 around 50% upside to my 2025 Fair Value  of $303 a share

Note 2026’s upside is an exceptional 89%. But I imagine I’ll reduce my Fair Value P/E multiple by then.

Bottom Line

Amazon (AMZN) had been a terrific stock to own historically.

This company is rolling! The margin expansion is amazing. And this is a real tech company as well. AWS is a real leader in Artificial Intelligence. Amazon even makes its own semiconductors for companies using AWS for AI.

AMZN moves up from 4th to 2nd in the Growth Portfolio Power Rankings. The stock moves up from 4th to 3rd in the Aggressive Growth Portfolio Power Rankings. I think MercadoLibre is a better wild card for this portfolio. 

Power Rankings

2 of 31

Aggressive Growth Portfolio

3 of 13

Conservative Stock Portfolio

N/A