Amazon Set to Ascend to Next Decade of Growth
E-commerce and cloud giant Amazon looks set to ascend to the next decade of growth. The major focus of the Q4 results was AWS (Amazon Web Services), which witnessed a reasonable rebound. At present, Amazon stock is trading at around 13.7x EV/EBITDA (on a forward basis) compared to its own five-year historical average of 21x. The Wall Street community is clearly optimistic about Amazon stock, with a majority having raised their price targets on the stock post-earnings. Additionally, there are other areas of profitable growth, including e-commerce, Amazon Prime memberships, as well as a strong advertising business. When I gave Amazon a Buy rating last year, the AWS segment was facing macro headwinds. I was optimistic that they were only temporary and that AWS would rebound. The recent Q4 results proved just that. The stock has since gained 70%+, but I continue to be bullish on AMZN based on reaccelerated growth across AWS (fueled by AI), e-commerce, and its advertising business, as well as margin and cash-flow expansion.
Q4 Earnings Beat Driven by Robust Momentum Across All Segments
On February 1, Amazon reported strong Q4 results driven by robust momentum across all revenue segments, including E-Commerce (record holiday shopping season), Advertising, and Cloud. Adjusted earnings of $1.00 per share handily beat analysts’ estimate of $0.80. Further, net sales jumped 14% year-over-year to $170 billion.
AI and cloud computing
will continue to complement and spur demand for each other. Further, the cloud optimization observed in 2023 due to recessionary fears is now over, and cloud computing is once again experiencing significant growth across the industry, as evidenced by reports from various companies. Amazon’s AWS now reportedly stands at the cusp of a $100 billion annual run rate.
Amazon’s Valuation Isn’t Expensive, Either
As Amazon houses multiple businesses under its radar, I believe the EV/EBITDA ratio is the best metric to evaluate the stock’s valuation. At present, Amazon stock is trading at around 13.7x EV/EBITDA (on a forward basis) compared to its own five-year historical average of 21x. This implies a huge 35% discount.
The Wall Street community is clearly optimistic about Amazon stock, with a majority having raised their price targets on the stock post-earnings. Overall, the stock commands a Strong Buy consensus rating based on unanimous Buy ratings. The average AMZN stock price target implies an upside potential from current levels.
Amazon stock was one of the most battered stocks in the tech crash of 2022. However, bygones are bygones. Q4 Cloud numbers were reassuring and hint that AWS is set to lead Amazon’s growth story in the coming years, further driven by AI tailwinds.
Therefore, I will buy the stock at current levels.
Analyst comment
Positive.
As an analyst, I predict that the market for Amazon will continue to grow in the next decade due to the strong performance of AWS, e-commerce, and the advertising business. The company’s margin and cash-flow expansion, coupled with its attractive valuation, make it an attractive investment opportunity. Furthermore, the Wall Street community’s optimism and raised price targets on the stock indicate a positive outlook. The recent Q4 earnings beat and the potential for accelerated growth driven by AI further support my bullish stance on Amazon stock.
