Amazon’s stock (NASDAQ: AMZN) has lost approximately 50% YTD as compared to the 20% drop in the S&P500 index over the same period. However, at its current price of $83, the stock is trading 40% below its fair value of $139 – Trefis’ estimate for Amazon’s valuation. While the company’s top line increased 15% y-o-y in the third quarter, it was still lower than the street expectations. The growth was mainly driven by a 27% y-o-y increase in amazon web services (AWS), 18% in third-party seller services, 25% in advertising services, and 10% in physical stores revenues. Notably, the firm suffered in 2022 due to tough macroeconomic conditions and a drop in online shopping. On the expense front, total expenses as a % of revenues increased in the quarter, leading to a 9% decline in net income to $2.9 billion.
The company’s net sales rose by 10% y-o-y to $364.8 billion in the first nine months of 2022, primarily driven by growth in AWS, advertising services, physical stores, and third-party seller services. However, it was partially offset by a drop in revenues from online stores due to a slowdown in online sales. Despite the positive growth, the net income decreased from $19 billion to -$3 billion. It was because of higher operating expenses as a % of revenues and a significant jump in other expenses (net) due to a marketable equity securities valuation loss from equity investment in Rivian Automotive.
Although the firm’s online sales revenues have remained under pressure in 2022, we expect them to improve with the recovery in the economy. Further, the revenues from physical stores have increased over the first three quarters due to Amazon’s effort to strengthen its presence in the offline retail space. In addition, the advertising services have benefited from its large user base and third-party seller network, which makes it a platform of choice for online advertising. Overall, we estimate Amazon’s revenues to touch $511.5 billion in FY2022. Additionally, AMZN’s net income margin is likely to suffer in the year. This will lead to revenue per share (RPS) of $50.09, which coupled with a P/S multiple of just below 3x will lead to a valuation of $139.
|S&P 500 Return||-6%||-20%||71%|
|Trefis Multi-Strategy Portfolio||-7%||-23%||210%|
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 Month-to-date and year-to-date as of 12/28/2022
 Cumulative total returns since the end of 2016