Amazon.com, Inc. (AMZN) Stock Worth Every Penny

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As expected, Amazon.com, Inc. (NASDAQ:AMZN) once more beat analyst expectations and traded higher after reporting second quarter earnings. Amazon.com, much like Facebook, Inc (FB), is creating more and more separation between its actual performance and what analysts expect it to produce.

Amazon Stock Worth Every Penny After Q2 Earnings

Also like Facebook, Amazon.com’s ability to perform at such a high level, and constantly beat analyst expectations means that some part of its business is thriving above all others.

What’s truly remarkable is that the segment in question is not what investors would think.

International Becomes the Big Surprise for AMZN

Amazon.com reported revenue of $30.4 billion, growing 31.1% year-over-year and beating analyst expectations by $850 million. Its $1.78 per share earnings beat the consensus by an even bigger margin, a 67-cent beat. Surprisingly, it was Amazon.com’s International business that ended up being the secret weapon in Q2.

Amazon’s International business 30% year-over-year. While that may seem unimpressive, International has been a laggard for much of the last year. In fact, analysts were expecting growth of just 17%-19% from the International business during the quarter.

So, what happened?

The answer is “India.” According to Amazon, “Amazon.in was the most visited e-commerce site and the most downloaded mobile shopping app in India in the second quarter.”

Why is this a big deal? Amazon entered India three years ago, but has done so at a very slow pace, starting with books and movies. Over time, it has become more aggressive.

In the last quarter, Amazon.com introduced Prime in India with free shipping in more than 100 cities. Furthermore, Amazon expanded its global selling programme to allow 12,000 of its merchants in India to sell in nine countries. With that said, Amazon did not breakdown revenue in India, but talks of growth, Prime adoption, and demand, was the first thing Bezos discussed for a quarter filled with big accomplishments and success.

When you consider that India is now growing faster than China and is expected to have a huge surge in middle-class consumers over the next decade, it seems wise that Amazon is making these investments to take retail command in a country that is equivalent to China with population.

AMZN Hits Everywhere Else, Too

All things considered, it is not just the International business and India that’s performing well for Amazon. The company is clicking on all cylinders.

The 28% growth in North America to go along with a 58% increase in AWS revenue all adds to the exceptional performance of AMZN. And the fact that operating income increased 180% illustrates that despite big investments, the profits are finally starting to come alive.

Nonetheless, AMZN stock does look expensive at 50x trailing 12-month free cash flow. However, it is still a good investment, even at all-time highs, for long-term investors. Amazon’s North American and International businesses are now producing consistent profits, and AWS’s operating margins are trending towards 30% from 22% last year.

Therefore, free cash flow and profits are going to grow faster than revenue. Looking ahead to the next year, that’s something to keep in mind when worrying about its price/FCF or earnings per share.

Lastly, AWS is more valuable than the market realizes. In retrospect, it could end up being worth $300 billion or more by itself. Given that AMZN stock’s price currently supports a $350 billion market capitalization, one could argue that Amazon stock does not appropriately value the long-term upside for Prime, drones, video content, or its e-commerce business around the world.

In other words, AMZN stock is still a “buy,” for long-term investors.

As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/amazon-stock-every-penny-amzn/.

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