Amazon’s stock (NASDAQ: AMZN) has lost approximately 31% YTD as compared to the 13% drop in the S&P500 index over the same period. Notably, the benchmark index for the technology sector, the NASDAQ-100 Technology Sector index, has lost 28% YTD. That said, at its current price of $2295, the stock has an upside potential of 59% to its fair value of $3651 – Trefis’ estimate for Amazon’s valuation.
Amazon is a global technology company, which mainly generates revenues through online and physical stores, third-party seller services, subscription services, advertising services, and amazon web services (AWS). It missed the consensus estimates for earnings in the first quarter, while the revenues were in-line with the expectations. The company posted total revenues of $116.4 billion, which is 7% more than the year-ago figure. This was driven by an 8% rise in North America sales and a 37% jump in the AWS revenues, partially offset by a 6% drop in the international sales. The North America revenues increased due to higher unit sales by third-party sellers and improvement in advertising sales. Similarly, AWS benefited from increased customer usage. That said, the international revenues suffered due to the negative impact of the foreign currency exchange rates and lower unit sales. Overall, the firm reported a loss of -$3.8 billion in the quarter. It was driven by a $7.6 billion loss from equity securities of Rivian Automotive and an increase in the operating expenses as a % of revenues.
The company’s net sales increased 22% y-o-y to $469.8 billion in FY 2021. It was mainly driven by a 12% growth in product-based revenues, followed by a 34% rise in net services sales. In terms of operating segments, the North-America sales grew 18% y-o-y, followed by a 22% and 37% increase in the international and AWS revenues, respectively. All in all, it translated into a 56% jump in the net income to $33.4 billion. The jump was primarily driven by a valuation gain of $11.8 billion from equity securities of Rivian Automotive.
Moving forward, we anticipate the firm to see moderate growth in revenues in FY2022, as consumers’ discretionary spending is likely to be negatively impacted due to macroeconomic factors. Further, improvement in offline retail sales is expected to reduce the growth rate of e-commerce revenues. Notably, AMZN has provided revenue guidance of $116-$121 billion for the second quarter. Altogether, Amazon’s revenues are expected to touch $529 billion in FY2022. Further, its net income margin is likely to take a hit in the year, leading to a net income of $13.7 billion. This coupled with an annual EPS of $26.85 and a P/E multiple of 136x will lead to the valuation of $3651.
|S&P 500 Return||0%||-13%||84%|
|Trefis Multi-Strategy Portfolio||-2%||-19%||220%|
 Month-to-date and year-to-date as of 5/9/2022
 Cumulative total returns since the end of 2016