- Amazon (AMZN) stock’s recent move higher represents a return to normal.
- Resistance is growing to the company’s size.
- A break-up of Amazon stock is still best for investors.
Amazon (NASDAQ:AMZN) stock is up $500 per share since March 7. This signals a return to normalcy for stock prices after the shocks of inflation, omicron and the Russia-Ukraine conflict.
However, the move seems bigger than it is. It represents an advance of just 17%. This comes after Amazon announced a 20:1 stock split, effective in June. Ultimately this equates to a post-split advance of $33 per share.
Long-time Amazon holders may be excused for curbing their enthusiasm. Amazon is now up just 10% from its level of a year ago. It remains 9% off its all-time high of $3,719 achieved last August.
| Ticker | Company | Current Price |
| AMZN | Amazon | $3,385.12 |
Back to the Fundamentals With AMZN Stock
Amazon will hit another speed bump when it reports first quarter earnings in April. That’s because the gain on its 20% stake in Rivian (NASDAQ:RIVN), reported during the December quarter, has all been given back by the market. Stock in the electric car and van company is down 51% since the start of 2022.
Absent of that shock, Amazon would be expected to earn $9.33 per share on revenue of $116 billion. That would be growth of just 7% over last year’s first quarter.
The expected results illustrate a basic problem for the world’s biggest online retailer. Big numbers are harder to shift than small numbers. Walmart (NYSE:WMT) did $138 billion in business during the equivalent quarter last year, and its annual growth rate has slowed to 3%.
Amazon sells at a premium to Walmart and other retailers because it’s not just a retailer. Amazon Web Services, its cloud unit, is growing at 44%per year and reported nearly one-third of its revenue as net income last year. Activist investor Daniel Loeb, who has been buying Amazon, believes AWS is worth over $1.5 trillion. Amazon itself is worth $1.72 trillion.
Valuing Amazon Stock
Few analysts see Amazon’s cloud being worth 25 times revenue, but it does bring up the question of how to value the whole company. Netflix (NASDAQ:NFLX), for instance, is now worth about 5.5 times its $30 billion per year of revenue. What, then, is Amazon Prime worth? Product revenue at Amazon came to $242 billion last year. Should that get a Costco Wholesale (NASDAQ:COST) valuation, which would be about $300 billion? Then what of Alexa, the Fire, Ring and the Amazon Kindle businesses?
Measuring Amazon by the sum of its parts is becoming important as trust-busters in the U.S. and Europe continue to circle it like hungry sharks.
Europe’s proposed Digital Markets Act would impose new requirements of compatibility and keep Amazon from favoring its own products and services. Amazon has deployed an army of lawyers and mobilized small businesses dependent on it, to fight antitrust bills in the U.S. But it may have a tougher time in Brussels, which has consistently hit Amazon with big fines over issues like privacy.
The Bottom Line on Amazon
At Tipranks no one has yet given up on Amazon, despite its poor performance. There are 34 Amazon analysts there, and all say buy it.
I own Amazon shares myself. It’s the biggest piece of my portfolio, nearly 20% of the total. Most of my shares were bought a decade ago and I never divested them, just rode them to the Moon.
My expectations for those shares, however, have moderated. I’m not expecting big gains from here. I’d be happy with growth of 10%. If you’re looking for bigger gains, you should look toward smaller cloud application providers or even biotech companies.
Paul Simon said it best. As “numbers get serious, they leave a mark.” They don’t grow as fast, even when they grow. The best move for Amazon shareholders who want to make big money is still a break-up.
On the date of publication, Dana Blankenhorn held long positions in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.
