Up More Than 100% Since The Start Of 2023, Where Is Amazon Stock Headed?

+17.21%
Upside
175
Market
205
Trefis
AMZN: Amazon logo
AMZN
Amazon

Amazon’s stock (NASDAQ: AMZN) has gained approximately 102% since the start of 2023 as compared to a 30% rise in the S&P500 index over the same period. However, at its current price of $170, the stock is trading 17% below its fair value of $205 – Trefis’ estimate for Amazon’s valuation

Amid the current economic scenario, AMZN stock has seen little change, moving slightly from levels of $165 in early January 2021 to around $170 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. Overall, the performance of AMZN stock with respect to the index has been quite volatile. Returns for the stock were 2% in 2021, -50% in 2022, and 81% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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, TM, and HD, 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 strong jump?

The company outperformed the consensus estimates in the fourth quarter of 2023, with net sales increasing 14% y-o-y to $170 billion. It was driven by a 13% growth in the North America segment, a 17% rise in the International unit and a 13% gain in the Amazon web services division. On the cost side, the operating margin witnessed a favorable increase from 1.8% to 7.8%. Further, total non-operating income improved from -$3.7 billion to $477 million. Overall, the net income jumped from $278 million to $10.6 billion.

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The top-line increased 12% y-o-y to $574.8 billion in FY2023, primarily because of positive growth in North America (12%), International unit (11%), and Amazon web services (13%) segments. Further, the operating income jumped more than 200% to $36.9 billion. It was driven by higher profitability numbers in the North American and International divisions. In addition, other income, which was -$16.8 billion in 2022 due to a marketable equity securities valuation loss of $13.9 billion, improved to $938 million. Altogether, the firm reported a net income of $30.43 billion vs. a net loss of $2.7 billion. 

Moving forward, AMZN expects the Q1 2024 revenues to remain between $138 billion to $143.5. Overall, we estimate the Amazon’s revenues to touch $641.44 billion in FY2024. Additionally, the adjusted net income margin is likely to be around 6.7%, resulting in a net income of approximately $43 billion and revenue-per-share (RPS) of $61.48. This coupled with a P/S multiple of 3.3x will lead to a valuation of $205.

 Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 AMZN Return 9% 102% 352%
 S&P 500 Return 3% 30% 124%
 Trefis Reinforced Value Portfolio 3% 41% 627%

[1] Returns as of 2/19/2024
[2] Cumulative total returns since the end of 2016

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