Amazon Stock Is Undervalued At The Current Levels

Amazon’s stock (NASDAQ: AMZN) has gained roughly 17% YTD as compared to a 6% increase in the S&P500 index over the same period. However, at its current price of $98, the stock is trading 27% below its fair value of $134 – Trefis’ estimate for Amazon’s valuation. The company posted better-than-expected revenues in the fourth quarter, with net sales increasing by 9% y-o-y to $149.2 billion. It was driven by a 13% increase in the North America segment and a 20% rise in Amazon web services (AWS) sales, partially offset by an 8% decrease in international division revenues. On the cost front, operating expenses witnessed an unfavorable increase in the quarter, leading to a 21% drop in the operating income. Further, the non-operating income (expense) was reduced from $11.5 billion to -$3.7 billion. Overall, the net income decreased by 98% y-o-y to $278 million.

The company’s top line grew 9% y-o-y to $514 billion in FY2022. It was driven by a 13% rise in North America and a 29% increase in the AWS divisions, somewhat offset by an 8% drop in the international segment revenues. Despite positive growth in revenues, the firm reported a net loss of $2.7 billion in the year. It was due to higher operating expenses and a significant jump in non-operating income (expenses) from $13.3 billion to -$18.2 billion. Notably, the non-operating income (expense) primarily decreased because of a pre-tax valuation loss of $12.7 billion from the common stock investment in Rivian Automotive.

Moving forward, AMZN expects the revenues to remain between $121 billion to $126 billion in Q1 2023. Overall, we forecast Amazon’s revenues to touch $560 billion in FY2023. Additionally, the adjusted net income margin is likely to improve in the year, resulting in a net income of around $17.3 billion and revenue-per-share (RPS) of $55.44. This coupled with a P/S multiple of just above 2x will lead to a valuation of $134.

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[1] Month-to-date and year-to-date as of 2/10/2023
[2] Cumulative total returns since the end of 2016

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