These bad days are going to be long for Amazon (NASDAQ:AMZN). With an earnings dip deluding the hopes for Amazon stock, people are wondering if it’s still worth keeping.
Second-quarter earnings of $13.5 billion, $1.26 per share fully diluted, and sales of $148 billion were seen as not good enough. Amazon’s projection of $154-158.5 billion in revenue in the current quarter was also below estimates.
More worrying was the conference call. Consumers are being “careful about the money they spend” and “continue to trade down on price,” analysts were told.
The earnings sent Amazon down $30/share or 15%. Any recovery was buried in the August 5 tech wreck, and a low of $154.13. Amazon was trading at $163 on August 7, down 13% over a single week.
Can this cloud giant recover?
Sum of the Parts
A decade ago, I began estimating Amazon’s value based on a “sum of the parts” analysis. A new look, based on that, is worrisome.
Start with retail and logistics. Walmart (NYSE:WMT) is still $100 billion bigger per year there, with $161 billion of sales in its most recent quarter. Its shares are up 27% this year but the market cap is still under $545 billion. Figure Amazon retail to be worth about $450 billion.
Amazon Web Services (AWS) is Amazon’s primary asset. It should exceed $100 billion in sales this year, with 35% of that net income. Cloud market caps are usually 10 times revenue. So, $1 trillion for the cloud.
Then there’s Amazon Prime video. Netflix (NASDAQ:NFLX) is the market leader there, with a market cap of $270 billion. Netflix, like Amazon, now sells ads so toss Amazon’s ad revenue in here.
The total is $1.72 trillion. That’s precisely Amazon’s August 7 market cap. The company is fully valued.
Amazon Fatigue
Yesterday’s miracle is today’s assumption. Yesterday’s “big enough to dominate” is today’s “big enough to demand regulation.”
Start with the store. The FTC and several states have filed antitrust suits, with Arizona adding a consumer fraud allegation over trouble canceling Amazon Prime.
Returns have become a problem. Retail return partners are being flooded with packages. Criminals are taking advantage of its return policies.
Amazon is now the country’s biggest logistics company, but that brings its own problems. I love seeing the Rivian (NASDAQ:RIVN) made electric truck, but I’ve also taken Amazon deliveries recently from gas-powered trucks, and even some private cars. Amazon is stretched.
Amazon’s AI strategy has been to be agnostic, supporting models from Meta Platforms (NASDAQ:META) and Anthropic, where it’s an investor.
In his conference call, CEO Andy Jassy touted the 19% growth at Amazon Web Services. But AWS continues losing ground to Microsoft (NASDAQ:MSFT). A few years ago, Amazon led Microsoft in market share 30-20. It’s now 31-25.
Amazon’s ad revenue last quarter was $12.8 billion, up 20% but still short of analyst estimates. Amazon says it has 200 million Prime members, and opened the video service to ads in January, unless customers pay $3/month.
Then there’s health, where no one is making money. Amazon has added One Medical telehealth services to its PillPack prescription services. It charges Prime members $9/month for access. It’s still losing money, just not as much as projected.
The Bottom Line
I continue to believe Amazon is a stock you own, not one you buy. Even with the recent losses, shares are up 9% in 2024, 15% over the last year, 80% over the last five years.
Amazon is now everywhere it can be in e-commerce, which means there will be bad headlines. CEO Jassy is not extraordinary in his love of automation, his distrust of unions, or his desire to force remote workers into the office.
He will get pushback on all that, and more, over the next year. However, I suspect that even with that, the value of Amazon stock will be over $2 trillion at this time next year.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Dana Blankenhorn held a LONG position in AMZN and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
