Source: PaxForex Premium Analytics Portal, Fundamental Insight
Amazon released its first-quarter financial results on April 30th, marking a notable uptick in its performance. The tech behemoth reported a 13% year-over-year increase in revenue, reaching an impressive $143.3 billion. This surpassed market expectations by a substantial $764 million. Additionally, the company's diluted earnings more than tripled to $0.98 per share, surpassing analysts' consensus forecast by $0.15.
Following this earnings beat, Amazon's stock experienced a modest uptick. However, investors are left wondering whether the stock still has room to grow, considering its remarkable 70% rally over the past 12 months. Let's delve into the reasons behind investors' renewed optimism in Amazon and explore its potential for further growth in the coming quarters.
Breaking down its revenue streams, Amazon's first-quarter performance showcased the strength of its diverse business segments. Approximately 60% of its sales were generated from its North American segment, while 22% came from its international operations. Notably, the remaining 17% originated from Amazon Web Services (AWS), the leading cloud infrastructure platform globally.
In the retail sector, both Amazon's North American and international segments exhibited resilience and stability over the past year. This was particularly significant as they navigated through the aftermath of the pandemic-induced slowdown in 2022. Amazon's North American arm benefited from enhanced delivery services, prompting customers to increase their purchases of everyday essentials. Moreover, the expansion of its integrated advertising business further bolstered its performance. Meanwhile, the company's international growth was fueled by its strategic expansion into high-growth markets.
On the cloud computing front, AWS demonstrated accelerated growth momentum over the last two quarters. This dispelled concerns surrounding its competitive position vis-à-vis Microsoft's Azure and Alphabet's Google Cloud. Amazon attributed this growth surge to companies upgrading their cloud infrastructure to accommodate larger workloads, sophisticated language models, and innovative generative artificial intelligence (AI) applications.
Overall, Amazon's robust first-quarter performance underscores its resilience and adaptability across its diverse business segments. With continued momentum in its retail and cloud divisions, coupled with strategic expansion initiatives, Amazon remains well-positioned for sustained growth in the foreseeable future.
As Amazon's sales growth steadied, it witnessed improvements in operating margins across its primary business segments in the past year. Notably, its North American operations experienced margin expansion, driven by increased sales from higher-margin third-party sellers, streamlining of deliveries, and cost reductions in logistics through regionalization. Similarly, the international segment saw a positive turn in margins due to the realization of economies of scale, resulting in reduced total expenses. Both segments benefitted from the expansion of Amazon's advertising business, marked by an uptick in sponsored product ads and streaming video ads.
Concurrently, Amazon Web Services trimmed operating expenses by implementing workforce reductions and optimizing infrastructure and fixed costs. This led to a notable uptick in AWS's operating margins, enabling Amazon to further support the growth of its retail businesses with its higher-margin cloud revenue.
Looking ahead to the second quarter, Amazon anticipates a 7%-11% year-over-year increase in sales, with a midpoint operating margin projection of 8.2%. Analysts project an 11% rise in sales for the full year, accompanied by a three-percentage-point expansion in operating margin to 9.4%.
Despite this stable outlook, investors should remain mindful of Amazon's investment in Rivian Automotive, an electric vehicle manufacturer facing financial challenges. In the first quarter, Amazon incurred a significant pre-tax valuation loss of $2 billion on its stake in Rivian, impacting its net income. Nonetheless, Rivian's stock valuation, trading at less than two times this year's sales, suggests limited downside potential until it ramps up production and narrows its losses. Amazon intends to retain its stake in Rivian, banking on the EV maker to provide 100,000 electric delivery vans to its fulfillment network by the end of the decade.
While monitoring Rivian's performance is prudent, analysts still project a robust 57% increase in Amazon's net income this year, accompanied by a 52% growth in earnings per share. Despite Amazon's stock trading approximately 5% below its all-time high, its valuation remains reasonable at 41 times this year's earnings. For investors confident in Amazon's ability to expand its e-commerce and cloud businesses while steadily improving its operating margin, the current stock price presents an opportune entry point.
As long as the price is above 175.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 187.80
- Take Profit 1: 190.00
- Take Profit 2: 200.00
Alternative scenario:
If the level of 175.00 is broken-down , follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 175.00
- Take Profit 1: 170.00
- Take Profit 2: 160.00
