Amazon Stock Is Up 22% YTD, What’s Next?

Amazon’s stock (NASDAQ: AMZN) has gained roughly 22% YTD as compared to a 6% rise in the S&P500 index over the same period. However, at its current price of $185, the stock is trading 13% below its fair value of $213 – Trefis’ estimate for Amazon’s valuation. 

Amid the current economic scenario, AMZN stock has witnessed gains of 10% from levels of $165 in early January 2021 to around $185 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-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. 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 surpassed the street estimates in the first quarter of 2024, with net sales increasing 13% y-o-y to $143.3 billion. It was due to a 12% growth in the North America segment, a 10% rise in the International unit, and a 17% gain in the Amazon web services (AWS) division. On the cost side, total operating expenses as a % of revenues witnessed a favorable decrease in the quarter, leading to an operating margin of 8% vs 2.5%. That said, total non-operating income was reduced from -$655 million to -$2.3 billion, hurting the bottom line. Overall, the net income jumped from $3.2 billion to $10.4 billion.

The top-line grew 12% y-o-y to $574.8 billion in FY2023. It was primarily driven by a growth in North America (12%), International unit (11%), and Amazon web services (13%) units. In addition, the operating expenses as a % of revenues decreased in the year, leading to a 200% rise in the operating income. Further, other income jumped from -$16.8 billion in 2022 to $938 million in 2023. Notably, the fluctuation in other income was because of a marketable equity securities valuation loss of $13.9 billion in 2022. All in all, it resulted in a net income of $30.4 billion vs $2.7 billion.

Moving forward, AMZN expects the Q2 2024 sales to remain between $144 billion to $149 billion. Overall, we forecast Amazon’s revenues to remain around $641.4 billion in FY2024. Additionally, the adjusted net income margin is likely to see some improvement in the year, resulting in a net income of $43 billion and revenue-per-share (RPS) of $61.48. This coupled with a P/S multiple of just below 3.5x will lead to a valuation of $213.

[1] Returns as of 5/3/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates