Amazon Underperformed The Revenue Consensus In Q3, What’s Next?

+81.75%
Upside
88.25
Market
160
Trefis
AMZN: Amazon logo
AMZN
Amazon

Amazon’s stock (NASDAQ: AMZN) has lost approximately 38% YTD as compared to the 18% drop in the S&P500 index over the same period. However, at its current price of $103, the stock is trading 36% below its fair value of $160 – Trefis’ estimate for Amazon’s valuationThe company’s top line missed the consensus estimates in Q3 despite a 15% y-o-y increase to $127.1 billion. The revenues benefited from a 27% y-o-y rise in the amazon web services (AWS) segment and a 20% growth in the North America unit, partially offset by a 5% drop in the international division. On the cost front, the cost of sales and technology & content expenses saw an unfavorable increase in the quarter. It resulted in a net income of $2.9 billion, down from $3.2 billion in the year-ago period. 

The company’s net sales rose by 10% y-o-y to $364.8 billion in the first nine months of 2022 driven by growth in the North America and AWS segments. However, it was somewhat offset by lower international revenues. Notably, the growth numbers slowed down in 2022 due to tough macroeconomic conditions and the re-opening of offline stores. On the cost side, the net income decreased from $19 billion to -$3 billion over the same period. It was because of higher operating expenses as a % of revenues and a significant spike in other expenses (net) due to a marketable equity securities valuation loss from equity investment in Rivian Automotive. 

Moving forward, the firm expects the fourth quarter revenues to remain between $140 – $148 billion (up 2-8%). Overall, we estimate Amazon’s revenues to touch $498.9 billion in FY2022. Further, it is likely to report a net loss of around $3.6 billion and revenue per share (RPS) of $48.86. This coupled with a P/S multiple of just above 3x will lead to a valuation of $160.

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 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 AMZN Return -8% -38% 176%
 S&P 500 Return 9% -18% 74%
 Trefis Multi-Strategy Portfolio 7% -22% 210%

[1] Month-to-date and year-to-date as of 10/31/2022
[2] Cumulative total returns since the end of 2016

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