It is becoming more clear that Amazon (AMZN -4.65%) is the story of two businesses: e-commerce and cloud computing. And their performance couldn’t be more different either. E-commerce is struggling to make a profit while Amazon Web Services (AWS) is crushing.
Is a company with mixed results worth owning? Let’s find out.
Strong sales, weak earnings
Amazon’s third-quarter sales growth headlines are impressive, with revenue growing 15% year-over-year (YOY) to $127.1 billion. But the real problem is Amazon’s net profit, which fell to $2.9 billion from $3.2 billion last year.
But as alluded to above, the headline numbers don’t tell the whole story.
Only by analyzing Amazon’s three main segments can investors get a complete picture.
|segment||Year-on-year revenue growth||Operating margin|
|north america sales||20%||(0.5%)|
The commerce side of the business struggled on the profitability front, but this healthy pace of growth came after North America sales grew only 10% and 8% in Q2 and Q1, respectively. It is reassuring to know that you are
Amazon is also well prepared for the holiday season with strong inventory levels.[W]It’s real that there are a variety of factors weighing on people’s wallets, and it’s unclear how much holiday season spending will increase compared to last year. While optimistic, this is probably the right way of thinking given the general economic uncertainty.
Its advertising service is buried in Amazon’s commerce segment. alphabet Also meta platformInstead, it grew 25% year over year to $9.5 billion. Additionally, third-party seller services posted its best quarter in a year, with revenues up 18% year-over-year to $28.7 billion.
We don’t know if these segments are profitable, but their growth and revenue share are impressive compared to Amazon’s online store, which posted 7% year-over-year growth to $53.5 billion.
Amazon is a master at pioneering new segments, and these two are the ones to watch.
AWS excels again
Without AWS, Amazon would not be profitable. It’s also been a big part of Amazon’s recent growth, with his 27% growth in the third quarter being the lowest it’s seen in years. One reason for slowing growth is cost optimization. Customers are looking to streamline their spending to save costs wherever possible.
However, while Amazon’s capex was about the same in 2022 and 2021, with $10 billion more being spent on AWS infrastructure, AWS hasn’t slowed down its expansion. Investors will have to keep an eye on AWS in the coming quarters as well to make sure growth stays within his 20% range, but the segment is performing well and investors don’t see much of it. You shouldn’t pry.
Both segments had a pretty strong third quarter, but the stock fell about 7% after the report, largely due to Amazon’s guidance.
In the fourth quarter, Amazon’s revenue is expected to grow by 2% to 8% and operating profit is expected to be between $0 billion and $4 billion. That’s a pretty broad range, and it’s clearly influenced by consumer momentum over the holiday period.
Still, the stock price is attractive. With sales of $502.2 billion and a market capitalization of $1.5 trillion in the last 12 months, Amazon stock trades at 2.09 times his sales. To know when Amazon was this cheap, you have to go all the way back to 2015.
There’s a lot of fear baked into Amazon’s stock about what the economy is going to look like, but this is a fair argument. However, long-term investors should know that recessions won’t last forever. If the economy recovers, Amazon could experience potential demand, impacting both its commerce and cloud computing segments.
Investors may see further declines in the stock price in the short term. But Amazon’s long-term prospects still look bright, with his burgeoning AWS business, strong advertising growth, and third-party seller services beginning to challenge Amazon’s own commerce store. increase.
I am a buyer of Amazon stock and would like to hold the stock for 5 years and see above market returns.
Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister to his CEO of his platform, Mark Zuckerberg, is a member of the Motley Fool’s board of directors. Keithen Drury has positions at Alphabet (C shares) and her Amazon. The Motley Fool holds positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Meta Platforms. The Motley Fool’s U.S. headquarters has a disclosure policy.