Amazon AMZN has demonstrated remarkable resilience and growth in the third quarter of 2024, with its stock jumping 10.4% to date since its earnings announcement. The e-commerce giant's impressive performance across key segments and strategic initiatives suggests this could be an opportune time for investors to consider adding AMZN to their portfolios.
Share-Price Movement
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Robust Financial Performance
The company delivered outstanding financial results, with earnings per share of $1.43, representing a dramatic 52.1% increase year over year. Revenues climbed to $158.9 billion, marking 11% growth compared to the previous year, while operating income reached a record $17.4 billion, surging 56% year over year. These strong numbers underscore Amazon's ability to execute effectively while maintaining profitability.
AWS and AI Leadership
Amazon Web Services (“AWS”) continues to be a primary growth driver, achieving a significant 19.1% year-over-year revenue increase to reach $27.5 billion, with an impressive $110 billion annualized run rate. The company's AI initiatives are particularly noteworthy, with AWS' AI business growing at a triple-digit rate year over year. The introduction of new foundation models through Amazon Bedrock, including partnerships with Anthropic, Meta Platforms META, and Mistral, positions Amazon at the forefront of the AI revolution.
Despite being the dominant player in the cloud market, the company faces strong competition from cloud giants like Microsoft MSFT and Alphabet’s GOOGL Google, which are also making concerted efforts to power their cloud solutions with GenAI.
E-commerce Strength and Innovation
The company's core retail business shows strong momentum, with the North America segment’s revenues increasing 9% to $95.5 billion and the International segment’s revenue growing 12% to $35.9 billion. Amazon's focus on operational efficiency is evident in its improved delivery speeds, with more than 40 million customers receiving same-day delivery in the past quarter. The successful Prime Big Deal Days event and enhanced Prime benefits, including fuel savings programs, demonstrate the company's commitment to customer value.
Advertising Growth and Expansion
Amazon's advertising services continue to impress, generating $14.3 billion in revenues, with an 18.8% year-over-year growth. The company's entry into the broadcast season for Prime Video advertising and implementation of AI-powered creative tools showcase its innovation in this high-margin business segment.
Strategic Investments and Future Growth
Looking ahead, Amazon's planned $75 billion capital expenditure for 2024 signals confidence in future growth opportunities. The company's expansion of Amazon Pharmacy to cover nearly half of the United States by 2025 and significant investments in AI infrastructure demonstrate its commitment to long-term value creation.
Investment Case
Amazon presents a compelling investment opportunity, driven by its demonstrated operational excellence through consistent margin improvements across major segments. The company's strong position in AI technology and cloud services, coupled with its successful diversification across e-commerce, advertising and healthcare, creates multiple growth vectors. Amazon's robust financial health, evidenced by a 57% increase in operating cash flow to $112.7 billion and free cash flow growth to $47.7 billion, provides ample resources for future innovations and market expansion, making it an attractive option for growth-focused investors.
While Amazon's forward 12-month Price-to-Sales (P/S) ratio of 3.09X appears higher than the Zacks Internet - Commerce industry average of 1.8X, this premium valuation is well justified by the company's exceptional market position and growth prospects. The slightly elevated multiple compared to its historical median of 2.8X reflects investors' confidence in Amazon's robust ecosystem and diverse revenue streams.
The premium valuation is supported by Amazon's significant competitive advantages, including its dominant position in e-commerce, rapidly growing cloud computing business and expanding advertising segment. When considering the company's strong execution, impressive margin improvements and substantial investments in future growth areas like AI, the current valuation offers an attractive entry point for investors seeking exposure to a market leader with multiple growth catalysts.
AMZN’s P/S F12M Ratio Depicts Stretched Valuation
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Looking Forward
For the fourth quarter of 2024, Amazon projects net sales between $181.5 billion and $188.5 billion, representing a 7-11% growth rate. The company's operating income is expected to range between $16 billion and $20 billion, showing continued strength in profitability.
The Zacks Consensus Estimate for net sales is pegged at $187.07 billion, indicating growth of 10.06% from the prior-year quarter’s reported figure.
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.49 per share, which indicates a jump of 47.52% from the year-ago quarter. The figure has moved north by 8.8% over the past 30 days.
Image Source: Zacks Investment Research
Investment Recommendation
Given Amazon's strong financial performance, leadership in key growth areas like AI and cloud computing, operational improvements and healthy future outlook, the recent stock price increase appears justified and may represent just the beginning of a longer-term upward trend. The company's robust ecosystem, diverse revenue streams and strategic investments in future growth areas make it an attractive option for investors looking for both growth and stability in their portfolios.
For investors seeking exposure to technology, e-commerce and AI sectors, Amazon's current position and forward-looking strategy make it a compelling buy, particularly for those with a long-term investment horizon. AMZN currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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