Amazon’s stock (NASDAQ: AMZN) has gained approximately 58% YTD as compared to a 7% rise in the S&P500 index over the same period. However, at its current price of $133, the stock is trading 16% below its fair value of $159 – Trefis’ estimate for Amazon’s valuation.
Amid the current economic scenario, AMZN stock has seen a decline of 20% from levels of $165 in early January 2021 to around $135 now, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. However, the decrease in AMZN stock has been far from consistent. Returns for the stock were 2% in 2021, -50% in 2022, and 58% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 9% in 2023 (YTD) – indicating that AMZN underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Consumer Discretionary sector including TSLA, HD, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AMZN face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?
The company posted better-than-expected results in the third quarter of 2023, with revenues increasing 13% y-o-y to $143.1 billion. It was driven by an 11% rise in the North America unit, followed by a 16% growth in the International and a 12% improvement in the Amazon web services segments. On the expense front, the operating expenses as a % of revenues decreased from around 98% to 92.2%. In addition, other income increased from $759 million to $1.03 billion in the quarter. Overall, the net income improved from $2.9 billion to $9.9 billion.
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The top-line grew 11% y-o-y to $404.8 billion in the first nine months of FY2023. It reported growth in each of the three segments –North America, International unit, and Amazon web services (AWS) division. Further, operating income improved from $9.5 billion to $23.6 billion over the same period. It was followed by a significant jump in the other income from -$13.4 billion to $649 million. Notably, other income includes marketable equity securities valuation loss of $10.4 billion for the nine months ended September 30, 2022, from equity investment in Rivian Automotive. Altogether, the firm reported a net income of $19.8 billion vs. a net loss of $3 billion in the year-ago period.
Moving forward, Amazon’s revenues are estimated to touch $538.6 billion in FY2023. Additionally, the adjusted net income margin is likely to improve in the year, resulting in a revenue-per-share (RPS) of $53.27. This coupled with a P/S multiple of 3x will lead to a valuation of $159.
|S&P 500 Return||-4%||7%||84%|
|Trefis Reinforced Value Portfolio||-5%||17%||500%|
 Month-to-date and year-to-date as of 10/31/2023
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