Amazon Stock Is Beating S&P500 In YTD Returns, What To Expect From Q2 Results?

Amazon (NASDAQ: AMZN) stock gained 20% YTD, as compared to a 15% rise in the S&P500 index. Notably, Amazon’s peer eBay (NASDAQ: EBAY) is up 30% YTD. Overall, AMZN is scheduled to report its fiscal Q2 2024 results on Thursday, August 1, 2024. We expect Amazon to report strong results, with earnings beating the consensus and revenues being in line (just above) with the expectations. The company outperformed the estimates in the last quarter, with net revenues increasing 13% to $143.3 billion. The growth was driven by higher revenues in North America, International, and Amazon Web Services (AWS) segments. Markedly, AMZN is a market leader in e-commerce and on-demand cloud solutions. We expect the second quarter result to follow the same trend. Our interactive dashboard analysis on Amazon’s Earnings Preview has more details.

Amid the current financial backdrop, AMZN stock has witnessed gains of 10% from levels of $165 in early January 2021 to around $185 now, vs. an increase of about 45% 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, 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 strong jump?

Our forecast indicates that Amazon’s valuation is $213 per share, which is 16% above the current market price of around $183. 

(1) Revenues to remain in line (just above) with the estimates

Amazon’s revenues grew 12% y-o-y to $574.8 billion in FY2023. It was mainly because of growth in North America (12%), International (11%), and Amazon web services (13%) divisions. Further, the same pattern was observed in the first quarter results, with Amazon web services revenues increasing by 17% y-o-y followed by a 12% gain in North America and a 10% rise in the International unit. We expect the momentum to continue in Q2. Overall, we forecast Amazon’s revenues to touch $641 billion in 2024.

Trefis estimates Amazon’s fiscal Q2 2024 net revenues to be around $148.83 billion, in line (just above) with the $148.57 billion consensus estimate.

(2) EPS is likely to top the consensus

Amazon Q2 2024 adjusted earnings per share (EPS) is expected to be $1.05 per Trefis analysis, 2% above the consensus estimate of $1.03. The adjusted net income increased from $2.7 billion to $30.4 billion in FY 2023. It was primarily because of higher revenues and lower operating expenses as a % of revenues. Further, other income improved from a loss of $16.8 billion to a gain of $938 million in the year.

The company posted an adjusted net income of $10.4 billion in Q1 2024 – as compared to $3.2 billion in the year-ago period. It was partly due to revenue growth and partly due to lower operating expenses as a % of revenues. We expect the Q2 results to be on similar lines. Overall, Amazon is likely to report an annual GAAP EPS of $4.12 and revenue per share (RPS) of $61.48 in full-year 2024.

(3) The stock price estimate is 16% more than the current market price

We arrive at Amazon’s valuation, using an RPS estimate of around $61.48 and a price-to-sales (P/S) multiple of just below 3.5x in fiscal 2024. This translates into a price of $213, which is 16% above the current market price. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

[1] Returns as of 7/31/2024
[2] Cumulative total returns since the end of 2016

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