Amazon (AMZN) Post-Earnings Reflection: Buy, Hold, or Sell?

E-commerce giant Amazon Inc. (AMZN) unveiled its first-quarter fiscal 2024 results on April 30, 2024, indicating a solid performance. This article outlines why now might be an advantageous time to consider purchasing the stock.

AMZN's first-quarter earnings exceeded analysts’ expectations, with revenue hitting $143.31 billion and net income reaching $10.43 billion. The company achieved a 12.5% revenue increase year-over-year, while net income and EPS surged by over 200%. Additionally, revenue from online stores climbed by 7% year-over-year, totaling $54.60 billion.

AWS and advertising, AMZN's key revenue drivers, surged by 17% and 24% compared to the previous year, reaching $25 billion and $11.80 billion, respectively. Revenue from third-party seller services was up 16% year-over-year to $34.60 billion. And lastly, subscription services revenue, which includes Prime memberships, came in at $10.70 billion, up 11% from the year-ago quarter.

As AI's significance in e-commerce and technology expands, AMZN's investments in this sector promise substantial growth. Moreover, its ventures into new markets aim to solidify its position as a global e-commerce leader.

Looking ahead, AMZN projects net sales to range from $144 billion to $149 billion in the second quarter (ending June 2024), marking a 7% to 11% growth compared to the same period in 2023. Operating income is estimated to be between $10 billion and $14 billion, up from $7.70 billion in the second quarter of 2023.

AMZN’s stock has surged 66% over the past year and 15.2% year-to-date, closing the last trading session at $175. It is currently trading above its 50-day and 200-day moving averages of $178,11 and $151.33, respectively, indicating an uptrend.

Here are the AMZN essentials shaping its short-term performance:

New Adventures

On April 30, 2024, AMZN’s AWS launched Amazon Q, a powerful generative AI assistant designed to accelerate software development and enhance access to internal company data. Additionally, AWS introduced Amazon Q Apps, allowing employees to create generative AI apps from company data by describing their desired app in natural language.

On April 23, AMZN introduced a new grocery delivery subscription for Prime members and EBT cardholders in over 3,500 U.S. cities and towns. Priced at $9.99 per month for Prime members and $4.99 per month for EBT cardholders, the subscription offers unlimited grocery delivery on orders over $35 from Amazon Fresh, Whole Foods Market, and local grocery retailers on Amazon.com.

Strong Financials

During the first quarter, which ended March 31, 2024, AMZN’s net product and net services sales rose 6.9% and 17.1% year-over-year to $60.92 billion and $82.40 billion, respectively. As a result, its total net sales improved 12.5% from the prior year to $143.31 billion.

Its operating income grew 220.6% from the year-ago value to $15.31 billion. Also, the company’s net income and EPS increased 228.8% and 216.1% from the prior year’s quarter to $10.43 billion and 98 cents, respectively.

Solid Historical Growth

AMZN’s revenue and EBITDA increased at a CAGR of 12.1% and 20.5% over the past three years and a CAGR of 19.6% and 25.2% over the past five years. Its net income and EPS grew at respective CAGRs of 25.7% and 24.4% over the past five years. In addition, the company’s LFCF rose at a CAGR of 55.4% over the past three years.

Robust Profitability

The stock’s trailing-12-month gross profit margin of 46.98% is 30.1% higher than the 36.12% industry average. Its trailing-12-month EBITDA margin of 14.88% is 34.8% higher than the 11.04% industry average. Moreover, the stock’s trailing-12-month CAPEX/Sales of 9.17% is 202% higher than the 3.04% industry average.

POWR Ratings Exhibit Bright Prospects

AMZN’s bright outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AMZN has an A grade for Growth, which is consistent with its impressive performance in the recent quarter. Moreover, the stock has a B grade for Quality, justified by its robust profit margins.

The stock is ranked #4 out of 53 stocks in the B-rated Internet industry.

Click here to access AMZN’s Growth, Value, Stability, and Quality ratings.

Bottom Line

AMZN's successful first quarter performance was fuelled by AWS's growth, which was boosted by new artificial intelligence (AI) features and advancements in the advertising business. The company also strives to attract AI application developers by granting access to a range of AI models. Moreover, AMZN is confidently leveraging its core business strengths to drive its ambitious growth targets.

Overall, AMZN’s solid quarter performance, high profitability, and solid growth over the past underscore the company’s strong position and potential for future expansion. Hence, the stock could be an ideal buy.

How Does Amazon.com, Inc. (AMZN) Stack Up Against Its Peers?

While AMZN has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Internet industry: Despegar.com, Corp. (DESP), Travelzoo (TZOO), and Yelp Inc. (YELP), with an A (Strong Buy) rating.

Click here to explore more Internet stocks.

What To Do Next?

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AMZN shares rose $5.97 (+3.41%) in premarket trading Wednesday. Year-to-date, AMZN has gained 18.38%, versus a 5.72% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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