VALUATION HIGHLIGHTS

1. Amazon North America constitutes 46% of the Trefis price estimate for Amazon's stock.
2. Amazon Web Services constitute 41% of the Trefis price estimate for Amazon's stock.
3. Amazon International constitutes 13% of the Trefis price estimate for Amazon's stock.

WHAT HAS CHANGED?

AMZN Stock Performance

AMZN stock has shown gains of 25% from levels of $165 in early January 2021 to around $205 in mid-November 2024, vs. an increase of about 60% for the S&P 500 over this roughly 4-year period.

However, the increase in AMZN stock has been far from consistent. 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.

Latest Earnings

In Q3 2024, the company posted total revenues of $159 billion, up 11% y-o-y. It was driven by a 9% rise in North America, a 19% gain in the AWS segment, and a 12% increase in International sales. Amazon's bottom line stood at $1.43 in Q3, compared to $0.94 in the prior-year quarter.

Amazon's net sales for FY 2023 increased 12% to $575 billion, compared with $514 billion in the previous year. Further, operating income increased to $36.9 billion in 2023, compared with $12.2 billion in 2022.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Amazon's value that present opportunities for upside or downside to the current Trefis price estimate for Amazon:

Amazon Web Services

• AWS Revenues: We currently forecast Amazon Web Services revenues to continue to increase rapidly, from about $91 billion in 2023 to over $250 billion by the end of our forecast period. However, given the potential competition in the space such as Alibaba and Microsoft, coupled with the huge base factor, Amazon can witness a lower-than-anticipated growth rate. We expect the increasing use cases of edge computing to help manage competitive pressures.


• AWS EBITDA Margin : We currently forecast Amazon's AWS EBITDA margin to touch 40% by the end of our forecast period due to relatively fixed operating expenses and high operating leverage due to economies of scale.

Amazon North America

• Amazon North America EBITDA Margin: We currently forecast Amazon to consistently add customers for sale and subscriptions in North America, leading to improved revenue per customer and resulting in high margins due to economies of scale. We forecast North America EBITDA Margin to improve from just below 13% in 2023 to almost 16%.

For additional details, select a driver above or select a division from the interactive Trefis split for Amazon at the top of the page.


BUSINESS SUMMARY


Amazon is an online retailer that sells electronics, books, retail consumer goods, music, games, apparel, and other merchandise to consumers in the U.S., Canada, the United Kingdom, Germany, Brazil, France, China, Japan, India Mexico, Netherlands, Italy, and other countries. The company also provides web services such as cloud computing and online storage to websites and web developers.


SOURCES OF VALUE


Amazon Web Services business is the most valuable segment for Amazon due to the company's high growth within this segment. In recent years, consolidated AWS revenues have seen high double-digit growth. Despite the lowest revenue contribution, AWS is the most valuable segment due to the high margins of cloud computing as compared to the e-commerce retail business which operates on razor-thin margins.


KEY TRENDS




Growing high-margin cloud services business


The growth in Amazon's Web Services has become a critical factor driving the company's expansion globally. Several companies continued to adopt these services in recent years. Besides helping big businesses, the company's cost-efficient web services are also useful for young start-ups that may have cash restrictions.
The growth in the AWS segment has been massive — the average annual growth in AWS revenues was 25% over the last five years. Apart from this, the company also showed strong profitability in the cloud services business, as margins have improved in this segment in successive years.


Heavy investments in international expansion could add pressure on profitability

Amazon is making significant investments to expand its presence in regions such as China, India, Italy, and Spain. While these investments will enhance revenue growth, however, this strategy could also raise margin pressure. Amazon will invest a couple of billion dollars in its Indian operations, but since the country's e-commerce market is highly competitive, we believe it will be difficult for Amazon to attain profitability in the region for at least a couple of years.