After losing nearly 1 trillion dollars in market value, Amazon is about to start a rebound
The 56% drop in 2008 laid the foundation for the 270% increase over the next 12 months. Although past performance does not guarantee future performance, considering Amazon (AMZN)'s dominant position in cloud computing and e-commerce, the possibility of a sharp rebound in stock prices cannot be ignored.
In July of this year, “Barron's” wrote an article that was bullish $Amazon(AMZN.US$ It is believed that the company's cloud business, AWS, has great long-term value. However, since July, the company's stock price has dropped 25% due to investor concerns about Amazon's core e-commerce business and the near future growth prospects of AWS.
While these concerns are understandable, Amazon is still a stock worth holding on to for a long time.
In July of this year, “Barron's” wrote an article that was bullish $Amazon(AMZN.US$ It is believed that the company's cloud business, AWS, has great long-term value. However, since July, the company's stock price has dropped 25% due to investor concerns about Amazon's core e-commerce business and the near future growth prospects of AWS.
While these concerns are understandable, Amazon is still a stock worth holding on to for a long time.
AWS's revenue growth is slowing faster than expected. Analysts currently expect the business's revenue to increase by 25% in the fourth quarter of this year, down from 40% in the same period last year.
However, as Piper Sandler analyst Thomas Champion (Thomas Champion) recently wrote in a research report, AWS has a market share of more than 50% in the cloud computing market and is expected to break the $100 billion revenue mark in 2023. This is more than three times that of Salesforce (CRM), and Salesforce is only growing at half the rate of AWS. If Salesforce is used as a reference, the value of Amazon's cloud business will account for more than half of Amazon's current market value of about 940 billion US dollars, and the value of this business will continue to grow.
Furthermore, e-commerce, Amazon's core business, continues to seize market share, but consumers have reduced spending due to macroeconomic factors such as increased inflation, high interest rates, and a potential recession.
Amazon's online store business revenue fell 3% in the first quarter, fell 4% in the second quarter, and resumed 7% growth in the third quarter. Wall Street analysts' expectations for this business's revenue during the holiday season are the same as the same period last year. This appears to be a worrying expectation, as most predictions indicate that the overall revenue of the online store industry will increase at least slightly during the holiday shopping season.
However, online stores are only one part of the story of Amazon's e-commerce business growth. The company has a huge warehouse and delivery infrastructure that powers the third-party seller service business, in addition to a growing advertising department that helps Amazon sellers attract consumer attention to their products. By 2023, third-party business revenue will reach 125 billion US dollars, and advertising business revenue will exceed 44 billion US dollars, more than $Meta Platforms(META.US$ One-third of the size of the advertising business.
During the pandemic, Amazon doubled the number of employees since the end of 2019 to more than 1.5 million due to extensive construction of its platform. The company recently changed its strategy, laid off staff and closed a number of warehouses.
MoffettNathan analyst Michael Norton (Michael Norton) recently began covering companies in the e-commerce sector. He pointed out that since 2001, the share of online shopping in the US retail market has increased from 1% to 14%. Norton believes this trend will continue. “Online shopping is more convenient and generally cheaper for consumers,” he said.
Norton only recommended one stock when publishing the research report, and that is Amazon. He believes that the company's e-commerce business is undervalued.
Norton believes Amazon is gradually reversing the situation and refocusing on its cost structure. He estimates that from 2020 to 2022, the company invested $81 billion in logistics and transportation infrastructure, and Amazon is about to reap the rewards of these investments.
Norton pointed out that while Amazon controls costs, the logistics business will improve. He expects the company's spending on logistics and transportation to drop from $25 billion this year to $10 billion in 2025.
Norton believes that Wall Street is overestimating Amazon's capital expenditure and underestimating free cash flow. He said that lower operating leverage and additional spending controls are expected to drive pre-tax profits in 2023 18% higher than Wall Street expectations and 9% higher than general expectations in 2024.
Norton expects Amazon's earnings per share of $1.93 next year, far higher than Wall Street's $1.68. He expects the profit margin before tax to reach 4.8% next year and 6.7% in 2024, which is higher than Wall Street's estimate of 2.5%.
Norton said, “Profits exceeding expectations and falling capital intensity are favorable to rising valuations. In the past three years, Amazon's valuation has been squeezed, pre-tax profit expectations have declined, and capital intensity is higher than expected. I think this situation is about to change.”
Since peaking in November 2021, Amazon's stock price has fallen by about 50%, losing nearly $1 trillion in market value in the process. However, as Piper Sandler analyst Champien pointed out, the 56% drop in 2008 laid the foundation for the 270% increase in the following 12 months. Although past performance does not guarantee future performance, considering Amazon's dominant position in cloud computing and e-commerce, the possibility of a sharp rebound in stock prices cannot be ignored.
However, as Piper Sandler analyst Thomas Champion (Thomas Champion) recently wrote in a research report, AWS has a market share of more than 50% in the cloud computing market and is expected to break the $100 billion revenue mark in 2023. This is more than three times that of Salesforce (CRM), and Salesforce is only growing at half the rate of AWS. If Salesforce is used as a reference, the value of Amazon's cloud business will account for more than half of Amazon's current market value of about 940 billion US dollars, and the value of this business will continue to grow.
Furthermore, e-commerce, Amazon's core business, continues to seize market share, but consumers have reduced spending due to macroeconomic factors such as increased inflation, high interest rates, and a potential recession.
Amazon's online store business revenue fell 3% in the first quarter, fell 4% in the second quarter, and resumed 7% growth in the third quarter. Wall Street analysts' expectations for this business's revenue during the holiday season are the same as the same period last year. This appears to be a worrying expectation, as most predictions indicate that the overall revenue of the online store industry will increase at least slightly during the holiday shopping season.
However, online stores are only one part of the story of Amazon's e-commerce business growth. The company has a huge warehouse and delivery infrastructure that powers the third-party seller service business, in addition to a growing advertising department that helps Amazon sellers attract consumer attention to their products. By 2023, third-party business revenue will reach 125 billion US dollars, and advertising business revenue will exceed 44 billion US dollars, more than $Meta Platforms(META.US$ One-third of the size of the advertising business.
During the pandemic, Amazon doubled the number of employees since the end of 2019 to more than 1.5 million due to extensive construction of its platform. The company recently changed its strategy, laid off staff and closed a number of warehouses.
MoffettNathan analyst Michael Norton (Michael Norton) recently began covering companies in the e-commerce sector. He pointed out that since 2001, the share of online shopping in the US retail market has increased from 1% to 14%. Norton believes this trend will continue. “Online shopping is more convenient and generally cheaper for consumers,” he said.
Norton only recommended one stock when publishing the research report, and that is Amazon. He believes that the company's e-commerce business is undervalued.
Norton believes Amazon is gradually reversing the situation and refocusing on its cost structure. He estimates that from 2020 to 2022, the company invested $81 billion in logistics and transportation infrastructure, and Amazon is about to reap the rewards of these investments.
Norton pointed out that while Amazon controls costs, the logistics business will improve. He expects the company's spending on logistics and transportation to drop from $25 billion this year to $10 billion in 2025.
Norton believes that Wall Street is overestimating Amazon's capital expenditure and underestimating free cash flow. He said that lower operating leverage and additional spending controls are expected to drive pre-tax profits in 2023 18% higher than Wall Street expectations and 9% higher than general expectations in 2024.
Norton expects Amazon's earnings per share of $1.93 next year, far higher than Wall Street's $1.68. He expects the profit margin before tax to reach 4.8% next year and 6.7% in 2024, which is higher than Wall Street's estimate of 2.5%.
Norton said, “Profits exceeding expectations and falling capital intensity are favorable to rising valuations. In the past three years, Amazon's valuation has been squeezed, pre-tax profit expectations have declined, and capital intensity is higher than expected. I think this situation is about to change.”
Since peaking in November 2021, Amazon's stock price has fallen by about 50%, losing nearly $1 trillion in market value in the process. However, as Piper Sandler analyst Champien pointed out, the 56% drop in 2008 laid the foundation for the 270% increase in the following 12 months. Although past performance does not guarantee future performance, considering Amazon's dominant position in cloud computing and e-commerce, the possibility of a sharp rebound in stock prices cannot be ignored.
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