Amazon's (AMZN 0.16%) stock has risen nearly 80% over the past 12 months. The e-commerce and cloud leader grappled with a post-pandemic slowdown and tough macro headwinds in 2022, but its core businesses have been stabilizing.
Amazon still remains a few dollars below its record high of $186.12 set on July 8, 2021. But could it rally even more and set new all-time highs over the next 12 months?
Image source: Amazon.
What happened to Amazon over the past year?
In 2020, Amazon's revenue surged 38% after the pandemic drove more people to shop online and more businesses upgraded their cloud-based services. Its sales rose another 22% in 2021.
But in 2022, its revenue only increased 9% as the pandemic waned, inflation curbed consumer spending, and companies reined in their cloud spending to cope with higher interest rates and other macro headwinds.
In 2023, Amazon's sales climbed 12% after its North American, international, and Amazon Web Services (AWS) businesses rebounded. That acceleration suggested the company had finally passed its cyclical trough and was primed to grow again.
|
Metric |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
|---|---|---|---|---|---|
|
North America sales growth (YOY) |
13% |
11% |
11% |
11% |
13% |
|
International sales growth (YOY) |
(8%) |
1% |
10% |
16% |
17% |
|
AWS sales growth (YOY) |
20% |
16% |
12% |
12% |
13% |
|
Total sales growth (YOY) |
9% |
9% |
11% |
13% |
14% |
Data source: Amazon. YOY = year over year.
Amazon's recovery in North America was driven by faster delivery speeds, more orders for everyday essentials, and the expansion of its advertising business. Its overseas growth was fueled by its move into more emerging markets.
AWS benefited from increased cloud infrastructure upgrades to support bigger workloads and new generative AI applications. That stabilization and acceleration in the second half of 2023 was a bright spot, because Amazon usually leverages AWS' higher-margin cloud revenue to subsidize the expansion of its lower-margin retail businesses.
Its profit growth is stable... if we ignore Rivian
Amazon's revenue growth is stabilizing, but its profit growth is lumpier. Its earnings per share (EPS) jumped 82% in 2020 and 55% in 2021, but it reported a loss in 2022 as its investment in the struggling EV maker Rivian withered. It returned to profitability in 2023, but its EPS was still 11% lower than 2021's result.
So to get a clearer view of Amazon's profitability, we should exclude its underwater investment in Rivian and focus on its operating margin, which expanded from 5.9% in 2020 to 6.4% in 2023 after it cut costs and laid off thousands of workers.
Rivian, which is still obligated to deliver 100,000 electric delivery vans to Amazon by the end of the decade, could remain a deadweight on its net income growth for the foreseeable future. But Rivian's production rates are stabilizing, it's gradually narrowing its losses, and it looks dirt cheap at 2 times this year's sales. All of those factors could limit its downside potential and prevent it from causing another annual net loss for Amazon.
Is Amazon ready to fire on all cylinders again?
For 2024, analysts expect Amazon's revenue and EPS to rise 12% and 42%, respectively, as its e-commerce and cloud businesses stabilize. However, its e-commerce marketplaces still face stiff competition from newcomers like PDD Holdings' Temu and Shein, while Microsoft's Azure is becoming a major threat to AWS in the cloud infrastructure and AI race. Amazon needs to move quickly to neutralize those threats.
In 2025, analysts expect Amazon's revenue and EPS to grow 12% and 26%, respectively. We should take those estimates with a grain of salt, but they imply that the worst is over and that it can overcome its macro and competitive headwinds. Based on those expectations, Amazon's stock trades at 43 times forward earnings.
That multiple might seem high, but it also trades at just 3 times this year's sales. That's a reasonable price-to-sales ratio for an e-commerce leader; eBay and Etsy shares also fetch about 3 times this year's sales. So over the next 12 months, I believe Amazon's stock continue to outperform the S&P 500 as investors recognize it as one of the simplest ways to profit from the secular growth of the e-commerce, cloud, digital advertising, and AI markets.
