Amazon’s stock (NASDAQ: AMZN) has lost roughly 14% YTD as compared to the 13% drop in the S&P500 index over the same period. However, at its current price of $143, the stock is trading 15% below its fair value of $168 – Trefis’ estimate for Amazon’s valuation.
Amazon generates revenues from online and physical stores, third-party seller services, subscription services, advertising services, and amazon web services (AWS). It posted mixed results in the second quarter of 2022, with earnings missing the mark, but revenues surpassing the estimates. The net sales improved 7% y-o-y to $121.2 billion driven by a 10% rise in the North America region and a 33% jump in the AWS (Amazon Web Services) unit. While the North America division benefited from an increase in unit sales, growth in AWS revenues was due to higher customer usage. On the flip side, the revenue growth was somewhat offset by a 12% y-o-y drop in international sales, which suffered due to the combined effect of lower unit sales and the negative impact of foreign currency exchange rates. Overall, the company posted a net loss of -$2 billion in the quarter, as compared to the net income of $7.8 billion in the previous year. It was because of higher operating expenses and a -$5.5 billion of other expenses (net) in Q2. Notably, the majority of other expense (net) was due to a marketable equity securities valuation loss from an equity investment in Rivian Automotive.
The company’s net sales increased 22% y-o-y to $469.8 billion in FY 2021. It was driven by growth in all three segments – North America, International, and AWS. That said, the growth slowed down in the first two quarters of 2022. Notably, the cumulative six-month revenues grew only 7% y-o-y to $237.7 billion. While the North America and AWS segments did see growth, a drop in international revenues weighed on the total sales figure. Altogether, AMZN’s net income reduced from $15.9 billion to -$5.9 billion for the first half of the year. It was mainly due to other expenses (net) of -$14.1 billion.
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Moving forward, the firm expects strong growth in the third quarter. It provided revenues guidance of $125 – $130 billion (up 13% – 17% y-o-y). We estimate Amazon’s revenues to touch $497.1 billion in FY2022. Further, its net income is likely to remain around $830 million. This coupled with revenue per share (RPS) of $48.61 and a P/S multiple of just above 3x will lead to the valuation of $168.
With inflation rising and the Fed raising interest rates, Amazon has fallen 14% 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||1%||-13%||85%|
|Trefis Multi-Strategy Portfolio||3%||-11%||252%|
 Month-to-date and year-to-date as of 8/5/2022
 Cumulative total returns since the end of 2016