Amazon’s stock (NASDAQ: AMZN) has lost roughly 29% YTD as compared to the 17% drop in the S&P500 index over the same period. However, at its current price of $118, the stock is trading 36% below its fair value of $183 – Trefis’ estimate for Amazon’s valuation.
Amazon derives revenues from online & physical stores, third-party seller services, subscription services, advertising services, and amazon web services (AWS). It posted weak results in the first quarter of 2022, with earnings missing the mark but revenues being just in-line. While the net sales improved 7% y-o-y to $116.4 billion, the growth was quite low as compared to the 44% jump seen in Q1 2021. Further, the firm reported a loss of -$3.8 billion in the quarter. It was partly due to higher expenses as a % of revenues and partly due to a $7.6 billion loss from equity securities of Rivian Automotive. In addition to this, the company presented lower than expected guidance numbers for the second quarter. This has made investors cautious about the stock, resulting in an 18% decline since the Q1 results.
Growth in net sales has slowed down as compared to the previous year, due to the easing of the Covid-19-related restrictions, the high rate of Covid-19 vaccination, and the re-opening of offline retail stores. Further, operating expenses increased due to high inflation, labor shortages, and geopolitical crisis. We expect the same trend to continue in the second quarter. Notably, consensus estimates for Q2 revenues and earnings are around $119.43 billion (up 4% y-o-y) and $0.16, respectively.
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The company posted strong results in 2021. Its net sales increased 22% y-o-y to $469.8 billion and the net income improved 56% to $33.4 billion. Moving forward, we expect the operating income to remain under pressure for the subsequent quarters due to an unfavorable increase in expenses and a slow revenue growth rate. Overall, Amazon’s revenues are estimated to touch $529 billion in FY2022. Further, its net income is likely to remain around $13.7 billion. This coupled with an annual EPS of $1.34 and a P/E multiple of 136x will lead to the valuation of $183.
With inflation rising and the Fed raising interest rates, Amazon has fallen 17% this year. Can it drop more? See how low can Amazon stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||4%||-17%||76%|
|Trefis Multi-Strategy Portfolio||7%||-17%||227%|
 Month-to-date and year-to-date as of 7/20/2022
 Cumulative total returns since the end of 2016