Okay so the last but not least company on this list is Amazon.
Amazon reported earnings on Thursday, and the company reported a huge beat coming initially
at $27.75 vs the just $3.57 that was expected, but because the majority of these earnings
are from a stake amazon has in Rivian where it earned $1.3B, the adjusted earnings per share,
meaning taking out this big payment, still came in much higher than expectations at $5.80.
Revenue came in slightly lower at $137.4B vs the 137.6B expected.
Now amazon did report guidance that wasn't quite as good as expected. Amazon expects
the revenue for the 1st quarter of 2022 to come in between $112 - $117B,
which is short of the $120B expected.
Now even though amazon with missed revenue and guidance, because amazon was able to
beat earnings estimates, investors seemed a little bit relieved. Amazon has dealt with
some higher costs than expected due to everything that's happened over the last couple of years.
But Andy Jassy, Amazon's new CEO, says that even with these challenges,
he feels optimistic about the state of amazon as it emerges from the pandemic.
Amazon also increased its Prime membership from $119
a year to $139 a year, and most members will now pay $14.99 instead of $12.99.
Another big headline is AWS, the actual profit generator behind Amazon, reported
an increase of its revenue of $40% during the 4th quarter, which is higher than expected.
When we look at this quarter, we can see that the $5.80 amazon earned is actually a pretty
insignificant amount compared to what they have been making in the past. But I think the big
reason Amazon's stock price has sat flat for the past year is the increasing costs they've
had to deal with lately. And even though $5.80 in a quarter isn't much compared with the $42
they made per share this year, because it came in higher than expected,
it shows that amazon may be dealing with costs better than expected.
When we look at the last 10 years worth of earnings for amazon, we can see that revenue
has been highly consistently growing. Pretty unique to amazon, this seems like one of the
few companies that didn't see a dramatic positive or negative impact during 2020,
which seems interesting since I think many people expected them to have a huge boost of sales.
We can also see from this chart that amazon has very slim margins. And in general,
retail is a pretty typically low margin, so we would expect this.
When we look at their expenses compared with their revenue, we can see that actually only
about half of amazons revenue is taken up by the cost of revenue,
which amazon describes as the costs to purchase products and shipping costs.
Now Fulfillment, which actually cost a lot at $75B over the last year, is the cost to
operate and staff their fulfillment centers. We see that Fulfillment increased from 15%
of revenue to 16% from 2020 to 2021. While this is slightly higher,
it's not really as dramatic as many people have been saying.
When we look at amazons segments broken down, we can see again very clearly that
North America is where the majority of the revenue comes from. But international does
bring in pretty significant revenue, too, with the last quarter bringing in $127B. However,
the international segment brings in almost no profit, so this isn't valuable revenue.
As I said earlier, the AWS segment is the biggest profit generator with $18B in profits
over the past year. For comparison, the North American segment only brought in $7B during 2021,
even though it generated $279B in revenue vs AWS at only $62B in revenue.
Now, if we look at the current forecasted earnings for amazon. The current expectation is to grow
from $469B in revenue and $33B in profits to $725B in revenue, and $59B in profits by 2024.
Now, if we look at this revenue growth, we can see that Amazon is projected to slow down
by 2024, with a projected 14% growth in that year. However,
it's important to remember that profits drive value, and Amazon is one of those
few companies where their revenue growth is really separate from how much profit growth
they see because AWS will drive most of their profits, and retail will drive their revenue.
When we look at their profit growth,
we can see that 2023 and 2024 are currently projected to see 50 and 60%
So I think to value Amazon, we should probably split the difference between
the two growth rates. To value them, we should use a growth rate of around 26% for the top
end of the range and 22% for the bottom. That puts amazon's fair P/E value between 62 to 80
Now when we look over at macrotrends.net we can see that this is roughly where they have traded
since 2019. Still, if Amazon is able to see that 50% earnings growth, they should actually increase
the earnings multiple it will trade at, so this should be a fairly conservative valuation.
Okay so when we look at this valuation charted out, we can see that amazon actually has a way
more insane upside than I had expected going into this. This puts the current 2024 valuation between
$7309 and $9430 per share, which is 131% to 199% higher than the current share price. Honestly,
this valuation increase is so high that I feel a little uncomfortable putting it out. Still,
the reality is, if AWS can power Amazon to grow their earnings by 50%
in consecutive years, this valuation is accurate, and you will absolutely see
amazon fly. Now I do want to point out that 2022 is projected a slight earnings decrease,
and if that's the case, we may not see much share price movement over during 2022. But 2023
and 2024 should see big increases as long as the forecasts don't change.
Now keep in mind that the person amazon picked
to take over control of the business previous ran AWS since it was created,
so I expect this part of the business to continue to do very well going forward.
So amazon right now is absolutely a buy.
Okay, guys, so to recap, here are all the stocks,
their current prices, and the recommendation I made on them.
But before you go, make sure you check out this great video I have over here
for you next! And as always, thanks for watching!
Now that video you just watched is part of a much larger video where I covered the earnings
for multiple stocks, so if you want to see the whole thing, click this link right here.
And as always, thanks for watching!