Will Amazon Stock Go Up?
If you’re thinking about making a buy or sell on Amazon, it’s important to know a few
things about the company’s future. For one thing, the stock is trading at an
EV/EBITDA multiple of around 14.3, which means it’s not going to see much growth
over the next few years. Also, its operating income guidance is $0-$4 billion, which
is a very low amount and puts it into negative territory when compared to its PEG.
Amazon's business model isn't affected by macroeconomic conditions
Amazon’s business model has evolved over time and is now highly diversified. It has a number of subsidiaries ranging from online retail to e-commerce to cloud infrastructure. The company is also a force in advertising. Its advertising services have grown rapidly. It is also experimenting with new revenue streams through its Amazon Prime subscription service.
Amazon’s business model is highly diversified, and its operations aren’t dependent on macroeconomic conditions. It has a strong e-commerce platform and a welldeveloped distribution system. It is capable of providing fast delivery and reasonable prices to its customers. It is also profitable and has a strong free cash flow.
The biggest piece of Amazon’s business model is its e-commerce platform. This platform offers a wide variety of products for customers to choose from. It also allows Amazon to experiment with new revenue streams and to create a more comprehensive customer experience.
The company has a vast and robust workforce. It isn’t just employees, but third-party suppliers, distributors, and contractors as well. These companies supply inventory to Amazon, which the company then makes a profit off of. Amazon’s business model is also fueled by high margins on services. In the first quarter of this year, its Amazon Web Services business generated $13.5 billion in revenues. It grew by 33% in the second quarter.
One of the most important aspects of Amazon’s business model is its cloud infrastructure, AWS. This system powers a lot of the Internet. It’s contributing a large share of the operating margins at Amazon, and it is becoming the company’s most profitable division.
Amazon's EV/EBITDA multiple is 14.7 times
If you’re looking to invest in Amazon you should make it a point to check out S&P Capital IQ’s consensus financial forecasts. These are not only a fun way to research a company, they also provide the best possible insight into what may be the most lucrative industry in the history of mankind.
S&P Capital IQ’s consensus finance forecasts suggest that in fiscal year 2023, Amazon will generate a staggering $24.7 billion in EBIT (earnings before taxes) which is roughly double the $5.3 billion generated in the previous fiscal year. Additionally, S&P Capital IQ predicts that Amazon will grow its gross margin by +100 basis points to 4.3% in fiscal year 2023. This translates to a hefty $144 billion in total revenue in Q4 2022. This is just the tip of the iceberg, as there are numerous other factors to consider, such as how well Amazon’s fulfillment and customer service systems function as well as the quality of its customer relationships.
One of the more interesting facets of S&P Capital IQ’s upcoming forecast is its discussion of Amazon’s share repurchase plans. These plans are expected to commence in the fourth quarter of 2022 and be completed by fiscal year 2023, thus giving investors some form of a buyback bet. The repurchases are likely to serve as a catalyst for the company’s stock, and will likely be on many investor’s radars when the dust settles in 2022.
Amazon's operating income guidance is $0-$4 billion
Amazon reported a net income of $2.9 billion for the third quarter. However, the company also reported an operating loss of $1 billion. Amazon also reported a record number of sales in the quarter. In total, the ecommerce giant’s sales increased 9%. The increase was driven by the largest quarterly over-over in the company’s history.
In the quarter, Amazon spent $19.9 billion on shipping. The cost of shipping increased by 14% over last year. Amazon also saw unexpected costs, which added up to $6 billion. Its expenses included inflation, extra space in its fulfillment networks, and increased fuel and shipping costs. In the fourth quarter, Amazon expects sales of between $140 and $148 billion. This would be a 2% to 8% increase from the third quarter of 2018. Its total revenues were $127.1 billion in the third quarter. The company’s revenue growth was -7% below the Wall Street consensus.
Its operating income for the third quarter was lower than in the second. The company’s earnings per share (EPS) was above the consensus, but fell short of the company’s guidance.
The company’s stock dropped by 20 percent after the report. It’s expected that the fourth quarter results will be negatively affected by changes in customer demand, global economic conditions, foreign exchange rates, and pandemic. In addition to its core retail business, Amazon is also facing soaring fuel costs and rising interest rates. Its employees have doubled over the last two years.
Amazon's free cash flow is sinking into negative territory
Amazon’s free cash flow may be going the way of the dinosaur but that doesn’t mean the company is in a hole. The ecommerce giant has been investing in some exciting new ventures in recent years including digital advertising and healthcare. Those initiatives should help to improve Amazon’s bottom line. However, the real test is whether or not the company can continue to invest and grow in the future. Despite a drop of more than 41% from its November high, Amazon’s stock is still trading at a respectable 46 times its expected earnings. Even so, Amazon’s stock price is not immune to the general market jitters. There are several factors that could affect the price of its shares, such as macroeconomic headwinds, uncertainty about China, and the possibility of a stock split or merger.
Although the company is laying off thousands of workers and closing some of its most important business units, the company has a few bright spots. For example, Amazon’s cloud hosting business is a strong bet for the future. While it is not the sexiest product on the market, it is the biggest player in the cloud hosting space. As a result, the company is able to deduct the cost of its infrastructure, data centers, and even solar farms. It also gets a nice tax break.
A lower Capex requirement should also lead to higher margins in the future. Considering Amazon’s rapid growth, there is no telling when or how much its free cash flow may improve. Historically, Amazon has had very low profit margins.
Amazon's PEG ratio is 6.33
The PEG ratio (price to earnings) is a great barometer of a company’s upcoming and past financial performance. As of this writing, the aforementioned fred has a PEG of 1.33 despite its size. That’s not bad given that a company with a PEG of.8 may have had its day in the sun, but the sands of time can be rife with a bit of forethought and planning. It’s a good thing to be armed with such knowledge at all times, and in a pinch you’ll be glad to have a quick and easy heuristic to aid in the decision making process.