About Amazon
We don’t even know where to begin.
This is pretty much the “everything” company.
This is also arguably the most innovative, customer-centric, well scaled company in the world.
What started out as a way in which a financially comfortable employee on Wall Street could minimize his lifelong regrets and venture off on his own by simply selling books over a little thing called the internet has since blossomed into one of the world’s largest technology companies.
But as you probably already know, Amazon is a little bit more than that.
It also just happens to be a logistics company giant, the largest e-commerce company in the world, the largest digital cloud company in the world (Amazon Web Services, frequently referred to simply as AWS), a provider of various entertainment services such as streaming platform host Amazon Fire TV among a few other revenue generating, consumer engaging entities.
Oh, and the company also owns one of the country’s most renowned grocery chains, Whole Foods Market, footwear e-commerce company, Zappos, live streaming platform, Twitch, a prominent robotics company by the name of Kiva Systems, an online prescription platform called PillPack, home security company Ring, iconic entertainment venue MGM Holdings and a whole lot more in the works with other subsidiaries such as primary care platform One Medical and its proposed acquisition of iRobot, your favorite automated, robot-run vacuum.
Obviously, this company has its hands in a few different cookie jars.
Nevertheless, innovation seems to be at the heart of this company, regardless of industry or category.
You can have practically anything delivered to your doorstep on the same day (especially if you’re an Amazon Prime member), watch nearly any of your favorite movies, television shows or even professional sports games through a variety of the company’s platforms or even get your groceries at one of its brick-and-mortar grocery store venues.
You don’t find Amazon, Amazon finds you.
While all of this is pretty exciting, we are most interested in the company’s current and future involvement in the Cloud.
To us, while the company has a more than sizable presence in the e-commerce, logistics and retail sectors, the net profit margins within these spaces aren’t especially known for being high, however, with respect to the Cloud and digital data warehousing in general, margins tend to be considerably higher, especially in the long run for a company that already has cornered a substantial amount of market share in the Cloud, as Amazon has already done.
We think this is the future and it seems as though Amazon’s executives just happen to agree.
Nevertheless, it must be said that the company faces some admittedly exceptional competition in the Cloud such as Microsoft (Azure), IBM (IBM Cloud), Google (Google Cloud), Alibaba Cloud, Salesforce, Oracle, Workday and a few others.
However, time and time again Amazon has proven itself to be one of the best (if not the absolute best) out-of-the-box innovators and has without a doubt put its capital where its mouth is.
Oh yeah, Alexa is a thing too.
Now that some of the groundwork regarding Amazon and its various business operations and streams of revenue have been established, it is only right that we dive into this company’s core financials so as to determine whether or not its stock is worth considering a long-term investment in.
Amazon’s stock financials
So, Amazon is a $1.1 trillion company.
Sort of a big company.
In addition to its massive market value, the company doesn’t pay out an annual dividend to its shareholders, accompanied by a not-so-readily available price-to-earnings (P/E) ratio, at least, at the time of this writing.
None of this really surprises us as Amazon is an enormous company (hence the trillion-dollar valuation), which just happens to also be a reason this company doesn’t distribute an annual dividend.
Namely, Amazon and its variety of businesses have so many moving parts that must be properly tended to and subsequently reinvested in, thus, issuing a dividend at this point in time would act more as a cash drain than a proper incentive for shareholders.
This company needs to hold onto cash in order to continue innovating, from our perspective.
Moving onto Amazon’s balance sheet, the company’s executive team is employed with dealing with around $462 billion in terms of total assets along with approximately $316 billion in terms of total liabilities.
For all of the operations going on over at Amazon, this balance sheet is in pretty good shape, as its total assets outweigh the amount of its total liabilities by a comparably wide margin, which is especially impressive given that the company has tons of operations within the e-commerce and logistics sectors alone, which aren’t particularly well known for generating extensive profit margins.
Even with all of these total liabilities, the company’s executives should have little to no problem addressing and managing them in the long run given this overall structure.
For those who alleged that Amazon’s growth is slowing, the company’s income statement would unequivocally disagree with you.
More specifically, the company’s total annual revenues since 2018 (we usually like to focus on the last five years) have gradually risen, sitting at $232.8 billion in 2018, rising to $280.5 billion in 2019, just north of $386 billion in 2020, continuing its climb on the growth elevator to $469.8 billion up to its latest reported figure (on TD Ameritrade’s platform) of just below $514 billion, as reported in 2022.
For some necessary scale, Walmart, the world’s largest retailer founded in 1962 (Amazon was founded in 1994), reported its most recent total annual revenue in early 2023 of $611.2 billion.
For Amazon to have caught up with one of its most fierce competitors this quickly is borderline astonishing and frankly should not be overlooked.
While it doesn’t ultimately matter whether or not Amazon turns out more total annual revenue than Walmart (but we think it will in the long run), it goes to show that Amazon has a wide base its operating off of yet is still cranking out more than impressive year-over-year (YOY) revenue growth.
Onto the company’s cash flow statement, Amazon has posted some overall strong net income and total cash from operations figures since 2018 with its net income rising each year since 2018 except as reported in 2022, standing tall at around $33.4 billion in 2021 and dropping to a rather considerably low -$2.7 billion, as reported in 2022.
This could be caused by a multitude of things, one of which includes what we hope to be the case, that the company opted to reinvest a bit more aggressively than usual in its current offerings, which could very well be the case as this company has an immense amount of businesses that can always use some freshening up on the capital investment front.
For instance, as we’ve briefly touched on in other stock analysis articles, the company has made sizable investments in the electric vehicle (EV) space with partners such as Rivian, which requires a particularly high load of initial investment(s) and consistent reinvesting.
Thankfully, each year between and including 2018 and 2022 was strong, as Amazon’s total cash from operations was overwhelmingly positive during these years.
Amazon’s stock fundamentals
Full disclosure, at this current juncture we have incredibly low expectations as it relates to Amazon’s trailing twelve month (TTM) net profit margin.
Why?
Well, as previously stated this company has its hands in many cookie jars and thus a proportionate yet abnormally high amount of scaled operations.
To add insult to injury, a lot of this company’s total annual revenue comes from its e-commerce segment, and thus its logistics business, which, for a company with such great deals and same-day delivery guarantees, doesn’t exactly bode well for it having an extraordinarily high TTM net profit margin.
Turns out we were right.
Specifically, according to TD Ameritrade’s platform, Amazon’s TTM net profit margin sits at a measly -0.53% to the industry’s average of -0.78%.
Retail, e-commerce and widespread logistics operations aren’t conducive to scoring a high, double-digit TTM net profit margin and the proof is clearly in the numbers.
Now, it should be said that it is our perspective that this number will inch closer and closer to positive, double-digit territory sooner rather than later as it continues to expand its already dominant stature in the Cloud, as the margins are much higher in this growing sector.
This is one of the reasons we’re not worried about this company’s presently muted TTM net profit margin in the slightest, as we think if one were to consider investing in this company’s stock, they ought to have a decade upon decade investment horizon, which is likely to yield plenty of TTM net profit margin expansion in the long run.
Moving onto the company’s TTM returns on both assets and investment(s), they are largely in-line with that of the competition’s averages, each standing at a hair below breaking even, or 0%.
For the various reasons mentioned in previous paragraphs, this doesn’t surprise us or scare us at all.
Should you buy Amazon stock?
First and foremost, Amazon isn’t going anywhere anytime soon.
Now that that obvious statement is out of the way, we see major potential for this company within the e-commerce and retail sectors, but even more within the Cloud and perhaps even artificial intelligence as well.
Data warehousing is both the present and the future, as data has become increasingly sought after and protected by companies of all shapes and sizes and this trend will not be subsiding anytime soon.
From a numbers standpoint alone, Amazon’s core financials are a bit above average from our vantage point, as its balance sheet is in mint condition, it is and is likely to continue experiencing stellar year-over-year (YOY) revenue growth, its proven ability to generate solid amount of cash through its operations and its mere brand recognition among the masses.
That being said, we think it will take a little time for the company to deepen its roots in the Cloud (and artificial intelligence if the company is intent on going down this route) and beef up its TTM net profit margin, along with the fact that the current recession is more than likely not going to conclude anytime soon, which will undoubtedly put a dent in Amazon’s e-commerce and logistics operating segments, which are big divisions of this company’s overall business.
Given the overall state of the economy and other prevailing factors and mixing them with Amazon’s current financial physique, we give the company’s stock a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.