Amazon (AMZN 1.84%) released stellar earnings for the second quarter of 2023, stunning many on Wall Street and Main Street. The stock jumped 10% in after-hours trading and maintained the gains the next day. Total revenue grew 11% year over year (YOY) to $134 billion on the back of strong gains in third-party sales and advertising. Operating income ($7.7 billion) and operating cash flow ($16.5 billion) also improved significantly. Amazon proves yet again that the company is built to thrive even in a challenging economy, and we really shouldn't be surprised.
Why did Amazon stock go up?
It wasn't long ago that some claimed Amazon's best days were over. But, as I pointed out here, the company's transformation from an online retailer to a diversified services company meant that investors should look beyond short-term headwinds and use the downturn as an opportunity. The gains since have been spectacular, as shown below.
AMZN data by YCharts
The reason is simple. Amazon's vast ecosystem allows it to thrive in multiple high-powered sectors. Revenue diversity is an incredible strength.
When one is down, the others can pick up the slack. For instance, when logistical snarls and inflation derailed retail sales in 2021 and 2022, Amazon Web Services (AWS) experienced massive growth. Now, as AWS sees headwinds, advertising, Prime, and third-party seller services thrive.
How does Amazon make money?
We probably all know that Amazon is the largest ecommerce seller in the U.S. by a wide margin. Amazon holds 38% of the market, with Walmart a distant second at 6%. These sales are first-party (items sold directly by Amazon) and through its third-party platform where sellers list their products on Amazon.com for a fee. The third-party platform also yields revenue by charging fulfillment and shipping fees. This was particularly impressive in Q2 with $32.3 billion in revenue on 18% growth.
Prime subscriptions and digital advertising services work hand in hand with retail sales. Roughly 200 million people worldwide subscribe to Amazon Prime to take advantage of free shipping and digital services like Prime Video. Brands flock to use Amazon's advertising services as well. These include things like featured products or brands, and video ads on the site. Subscription services and advertising pulled in $10 billion and $11 billion, respectively, on 14% and 22% growth in Q2.
AWS is the world's most prolific cloud services platform, outpacing Microsoft Azure. After growing at a more than 30% clip in 2021 and 2022, AWS sales growth has slowed this year as other companies look to save on data usage costs. Amazon is actively working with customers to lower their bills. This means sacrificing short-term sales but cementing long-term relationships. Even so, the segment produced $22.1 billion in revenue and 12% growth in Q2. AWS will also see demand from the artificial intelligence (AI) boom as data needs multiply.
Since a picture is worth a thousand words, Amazon's increasingly diversified revenue streams are depicted below.
Data source: Amazon. Chart by author.
No revenue stream makes up more than 45% of the total over the trailing 12 months. This makes Amazon an excellent company, and stock, to own for the long haul.
Is Amazon stock a buy?
Along with the strong footholds in the growth industries above, Amazon has serious tailwinds from the AI movement. Amazon Bedrock, for example, allows customers to customize existing AI applications (like chatbots) to suit their needs. And, of course, they run on AWS. The company is built for now and for the future.
Amazon stock has risen 63% in 2023 but is still 25% off its all-time highs. In Amazon's case, the price-to-earnings (P/E) ratio isn't a good measure currently because of the company's recent unprofitability. However, other metrics like the price-to-sales (P/S) and price-to-operating cash flow ratios indicate that the stock is still undervalued, as shown below.
AMZN PS Ratio data by YCharts
Growth investors would be remiss not to put Amazon stock on their shortlist. Few companies can match its vision, diversity, and performance. This makes the company an excellent stock to buy and hold for the long haul.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bradley Guichard has positions in Amazon.com and Microsoft. The Motley Fool has positions in and recommends Amazon.com, Microsoft, and Walmart. The Motley Fool has a disclosure policy.
FAQs
Amazon. Amazon and Apple have the cash and customer appeal to stick around forever. One of the best investments you can make is to buy shares of a financially strong company that makes products millions of people use every day. Amazon (AMZN -2.56%) and Apple (AAPL -1.22%) are two such companies that come first to mind.
What will 1 share of Amazon stock be worth in 10 years? ›
Analysts at Coin Price Forecast do offer a 2034 projection for Amazon stock, estimating a 10-year price increase of 276%, to $672 per share.
Why is Amazon stock worth buying? ›
Shares in Amazon fell 50% in 2022 alongside steep profit declines in its e-commerce segments. However, the company has made an impressive recovery, proving its reliability and resilience. In fiscal 2023, Amazon's revenue rose 12% year over year to $575 billion, while operating income tripled to $37 billion.
Is Amazon a buy 2024? ›
Fair Value Estimate for Amazon Stock
With its 3-star rating, we believe Amazon's stock is fairly valued compared with our long-term fair value estimate of $185 per share, which implies a 2024 enterprise value to sales multiple of 3 times and a 3% free cash flow yield.
How high will Amazon stock be in 5 years? ›
How high can Amazon stock go? As of April 19, 2024, the consensus Amazon stock rating from 45 analysts compiled by MarketBeat was a 'Buy'. According to the latest analyst's price targets, the AMZN stock could reach $202.80 by April 2025.
Will Amazon stock go up in 2024? ›
Analysts are overwhelmingly bullish on Amazon, and multiple brokerages listed it as a top pick for 2024. It has a consensus rating of “Strong Buy,” and is the highest-rated stock among the Magnificent 7.
What would $1000 invested in Amazon in 1997 be worth today? ›
If you had invested $1,000 during Amazon's IPO in May 1997, your investment would be worth $1,341,000 as of August 31, according to CNBC calculations.
What if you invested $10,000 in Amazon 10 years ago? ›
As a result, those who bought $10,000 worth of Amazon's stock in January 2013 would have $78,138.51 today, with an annual rate of return of 22.42%. The growth proves the importance of holding stocks over the long term, as doing so can safeguard your investment against short-term headwinds.
What will $10,000 be worth in 20 years? ›
The table below shows the present value (PV) of $10,000 in 20 years for interest rates from 2% to 30%. As you will see, the future value of $10,000 over 20 years can range from $14,859.47 to $1,900,496.38.
What are the cons of buying Amazon stock? ›
But, with such great size, comes a set of unique risks. The biggest risks of investing in Amazon.com, Inc. (NASDAQ: AMZN) stock are increasing competition, profit potential uncertainty, revenue growth uncertainty, speculative valuation and share price volatility.
Amazon's analyst rating consensus is a Strong Buy. This is based on the ratings of 41 Wall Streets Analysts.
Why is Jeff Bezos selling Amazon stock? ›
He's following a prescribed plan available only to corporate insiders—and his recent cross-country move will reduce the transaction's tax bill. Bezos sold his shares as part of a predetermined process for selling company stock. And his recent move to Miami will ease the tax burden of that process.
Where will AMZN be in 10 years? ›
In 2030, the Amazon stock will reach $ 823.42 if it maintains its current 10-year average growth rate. If this Amazon stock prediction for 2030 materializes, AMZN stock will grow 349.17% from its current price.
What will Amazon be worth in 2030? ›
Amazon could continue to grow faster than Apple through the end of the decade, but its valuations are a bit stretched. If Amazon maintains its current valuations, matches analysts' expectations, and grows its EPS at a CAGR of 20% from 2025 to 2030, its market cap would reach $5.5 trillion by the final year.
How high will Amazon go? ›
Amazon price prediction 2024-2025. The CoinCodex price prediction for AMZN is forecasting that the stock could reach a new all-time high above $260 in January 2025. Keep in mind that the prediction above is based on the state of technical indicators as of March 20, 2024, and could change considerably over time.
Does Amazon stock have a future? ›
Amazon Stock Forecast
The 46 analysts with 12-month price forecasts for Amazon stock have an average target of 189.85, with a low estimate of 123 and a high estimate of 235. The average target predicts an increase of 8.72% from the current stock price of 174.63.
Is Amazon stock a buy, sell, or hold? ›
Amazon stock has received a consensus rating of buy. The average rating score is A1 and is based on 97 buy ratings, 3 hold ratings, and 0 sell ratings.
Which is the best stock to buy for long term? ›
Overview of the top long-term stocks in India as per market capitalisation
- Reliance Industries. With a market capitalisation of ₹19,91,203 crore (as on 19th February 2024), Reliance Industries Limited is the biggest stock in Indian markets. ...
- Tata Consultancy Services (TCS) ...
- HDFC Bank. ...
- ICICI Bank. ...
- Infosys.
If we apply the S&P 500's average price-to-earnings ratio (P/E) of 27 to this $70 billion in earnings, Amazon's stock would have a market cap of $1.89 trillion in 2025. This is slightly higher than the current $1.77 trillion valuation.
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