Hidden in Amazon's (NASDAQ: AMZN) financial statements is a $104 billion secret source of revenue. Amazon stock investors will not want to miss news about this lucrative source of revenue for the e-commerce giant.
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With dominant positions in massive markets like internet search and video streaming, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) stands as a titan in the advertising industry. The $1.2 trillion behemoth also has intriguing growth potential in other fast-growing markets, such as cloud
Amazon (NASDAQ: AMZN) has given investors plenty to worry about lately. Its shares have plunged more than 40% year to date. The company's fourth-quarter guidance was much weaker than anticipated. Its e-commerce and cloud hosting customers are tightening their purse strings.
It's not looking good these days for online retail giant Amazon (NASDAQ: AMZN). The company is bracing for what's likely to be a tough year in 2023 with a potential recession on the way. It recently announced plans to lay off 10,000 employees, and there could be more to come as i
Benjamin Franklin once said that "an investment in knowledge pays the interest." These were wise words, because nothing will pay off more than educating ourselves on the market and individual companies.
After a decade of blockbuster returns, the tech industry is having a rough year. The Nasdaq Composite is down about 31% year to date, falling twice as far as the S&P 500, and there's been a steady drumbeat of layoffs from the tech sector in recent months. Among the tech compa
It's no secret that Amazon (
NASDAQ: AMZN
) has rewarded its shareholders with spectacular returns over the past decade. Nevertheless, following last year's peak market euphoria, shares of Amazon have been gradually correcting, in line with the underlying, deteriorating market conditions. In fact, at under $95, Amazon stock is now
trading near its three-year lows, which begs the question of whether it's time to reconsider its investment case.
In my view, Amazon does have the potential to post massive net income margins powered by its already highly-profitable Amazon Web Services segment and economies of scale in its e-commerce segment. However, as long as inflationary pressures keep the company's expenses elevated and the ongoing macroeconomic situation suppresses consumer demand, shares are likely to remain sluggish. Accordingly, I am neutral on the stock.
Profitability Needs to Improve
As I just mentioned, Amazon has the ability to generate massive amounts of net income. We saw this potential in last year's results when Amazon
recorded a tremendous $33.4 billion in net income. However, with the company already posting an unprofitable first half of the year and a barely-profitable Q3, even if the holiday season boosts its results substantially, Amazon will likely end up losing money for the year. After all, Amazon's guidance for Q4 already targets an operating income between just $0 and $4.0 billion.
Additionally, with the macroeconomic environment barely improving lately, this trend may be brought forward to 2023. Sure, inflation slightly decelerated in October, but it still remains at quite high levels. The Fed remains hawkish too, so additional interest rate hikes could further increase Amazon's interest expenses. Thus, we shouldn't be surprised if management slows down its future investments, dragging the company's economies of scale down in the short-to-medium term.
Regardless, I believe that for investors to start getting excited about the stock again, Amazon's profitability needs to improve materially first.
Can AWS's Growth be Sustained?
Amazon's most profitable segment is its Web Services due to enjoying quite high margins. Thus, this is why I think its future prospects are key to predicting Amazon's net income recovery.
In Amazon's most recent Q3 results, AWS produced $20.5 billion in net sales, implying a year-over-year increase of 27% (or 28% in constant currency). Its operating income remained juicy as well, coming in at $5.4 billion, up 11% compared to last year. Nevertheless, it implies a slowdown from the prior's quarter's growth of 33% and last year's Q3 growth of 39%.
Due to the ongoing market conditions, including global corporate spending likely to decline moving forward as firms aim to reduce costs, it's quite likely that AWS' growth will decelerate further. I mean, it's still growing at impressive levels, especially considering that the company goes all the way back to 2002. But yes, given the macro landscape, a further slowdown is more or less certain - especially with competition from Microsoft (
NASDAQ: MSFT
) and Alphabet (
NASDAQ: GOOGL
) (
NASDAQ: GOOG
) ramping up.
Retail Segment: The Struggle Persists
Despite AWS's success and robust contribution to profits, Amazon's Retail business, which makes up the largest chunk of revenues, seems to be struggling quite hard.
In North America, segment growth has been sustained at satisfactory levels, with Q3 revenues rising 20% year-over-year, from $65.6 billion to $78.7 billion. Nevertheless, this growth hardly satisfied investors, as the segment posted an operating loss of $142 million versus an operating profit of $880 million last year. Not only is this a massive plunge, but it's especially worrying considering that Amazon should have achieved further economies of scale given its top-line growth. This just goes to show how severe the increase in labor and fulfillment costs has been lately.
The situation in the International segment has been even worse, as current headwinds amid a strong dollar have been negatively impacting results further. While revenues would have grown 12% in constant currency, revenues actually declined 5% to $27.7 billion. Combine that with the ongoing rise in costs, and you get an operating loss of $2.5 billion, an even further loss from last year's $911 million. With the dollar remaining exceptionally strong, Amazon will have an even harder time here in terms of achieving sustainable profits in the current market environment.
Is AZMN a Good Stock to Buy, According to Analysts?
Turning to Wall Street, Amazon has a Strong Buy consensus rating based on 33 Buys and two Holds assigned in the past three months. At $139.88, the average Amazon stock price prediction implies 50.09% upside potential.
Takeaway: Wait for Amazon's Retail Outlook to Improve
Amazon has a great business, but the company is currently sitting in the middle of a storm due to its retail segment being very sensitive to unfavorable macroeconomic events. While the stock may have already fallen enough to justify buying the stock, assuming profitability improves in the future, I will stay on the sidelines until I see the Retail business navigating the current environment better.
Disclosure
The NASDAQ 100 After Hours Indicator is down -15.46 to 11,709.38. The total After hours volume is currently 101,724,161 shares traded.The following are the most active stocks for the after hours session: Banco Bradesco Sa (BBD) is -0.02 at $2.83, with 13,009,027 shares traded. A
Amazon’s (
NASDAQ:AMZN
) third-quarter results reflected the impact of macro pressures on the company’s e-commerce and cloud computing businesses. Its guidance for the holiday quarter indicates a slowdown in revenue growth as inflation and fears of an impending recession are impacting consumer spending. Nonetheless, Wall Street analysts remain bullish about Amazon’s long-term prospects even though near-term pressures persist.
Amazon Focusing on Productivity
After reporting two straight quarters of losses, Amazon generated a net income of $2.87 billion or
$0.28 per share in Q3. However, net income declined 9% year-over-year. The company’s North America and International retail divisions reported operating losses in the quarter. In contrast, the cloud computing business, Amazon Web Services, generated an operating income $5.4 billion, reflecting a growth of 11% even as the division’s revenue grew at the slowest rate since 2014.
Amazon is aggressively reducing costs and boosting productivity as inflation is weighing on profitability. It is driving productivity across its fulfillment and transportation networks, and other areas as well.
The company is expected to
lay off about 10,000 employees to bring down costs. Additionally,
Amazon is reportedly reviewing unprofitable businesses, including its devices unit, which also comprises voice assistant Alexa. It’s worth noting that the company continues to invest in areas where future growth looks promising, including AWS.
Is Amazon Stock a Buy, Sell, or Hold?
Recently, MoffettNathanson analyst Michael Morton initiated coverage of Amazon stock with a Buy rating and a price target of $118. Morton sees the scope for Amazon’s valuation multiple to expand as the company is optimizing its capital expenditure and improving profitability.
Overall, Wall Street has a Strong Buy consensus rating on Amazon stock based on 33 Buys versus two Holds. The average AMZN stock price target of $139.88 suggests 51.3% upside potential from current levels.
Shares are down 44.5% year-to-date.
Conclusion
Near-term pressures on Amazon due to macro challenges cannot be denied. Nevertheless, most analysts remain bullish on AMZN stock due to their faith in the company’s long-term potential.
Analysts see several positives in the company, including its dominance in the e-commerce space, leading position of AWS and further growth prospects in cloud services, rapidly growing advertising business, and strong fundamentals. For investors with a long-term horizon, Amazon might be an attractive pick, given the steep pullback.
Disclosure
There's no denying that 2022 has not been a great year for Amazon (NASDAQ: AMZN) stock. It's easy to look at a chart, see that the stock is down over 40% year to date, and begin to panic.Understanding why the stock has cratered is a bit more complex, though. At its core, Amazon c
Bill Nygren is a partner and the chief investment officer for U.S. equities at Harris Associates. He is also the co-portfolio manager of three Oakmark Funds. He is a legendary value investor and one of the investors I admire the most. In my book, he's a first-ballot Hall of Famer
Amazon (AMZN) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.
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(RTTNews) - Amazon Web Services Inc. (AWS), an Amazon.com Inc. company (AMZN), said that it has launched its second AWS infrastructure Region in India—the AWS Asia Pacific (Hyderabad) Region.
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