Market Capitalization: $2.01 Trillion
Enterprise Value: $2.08 Trillion
Shares Outstanding: 10.50 Billion
Sector: Consumer Cyclical / Technology
Industry: Internet & Direct Marketing Retail
Analysis as of: September 26, 2024

1. Company Overview

Amazon.com, Inc. (NASDAQ: AMZN), founded in 1994 and headquartered in Seattle, Washington, is a global leader in e-commerce, cloud computing, digital streaming, and artificial intelligence. Starting as an online bookstore, Amazon has expanded into a vast array of products and services, becoming one of the world’s most valuable companies.

Key Business Segments:

• North America and International Retail:
  • Online Stores: Sales of products and content purchased for resale from third-party sellers.
  • Physical Stores: Operates physical stores such as Amazon Fresh, Whole Foods Market, Amazon Go, and others.
  • Third-Party Seller Services: Provides platforms and services for third-party sellers to sell products.
  • Subscription Services: Includes Amazon Prime memberships, offering benefits like free shipping, streaming services, and exclusive deals.
  • Advertising Services: Offers advertising solutions to sellers and vendors to promote their products.
• Amazon Web Services (AWS):
  • Cloud Computing Services: Provides scalable and cost-effective cloud infrastructure and services, including computing power, storage, and databases.
  • Artificial Intelligence and Machine Learning: Offers AI and ML services for businesses to integrate into their applications.
  • Enterprise Solutions: Delivers enterprise-level solutions for data analytics, Internet of Things (IoT), and security.

Amazon’s diversified business model allows it to capitalize on various revenue streams, from retail sales to cloud services, and positions the company as a dominant player in multiple industries.

2. Financial Performance

a. Revenue and Growth

• Trailing Twelve Months (TTM) Revenue: $604.33 Billion
• Year-over-Year (YoY) Revenue Growth: +12.32%

Revenue Trend (Selected Years):

Analysis:
Amazon has demonstrated consistent revenue growth over the past several years, with a significant boost in FY 2020 due to increased online shopping during the COVID-19 pandemic. While growth rates have moderated since then, the company continues to expand its top line, driven by strength in its core e-commerce business and AWS cloud services. The TTM revenue growth of 12.32% reflects Amazon’s ability to sustain growth despite a challenging macroeconomic environment.

b. Profitability

• Net Income (TTM): $44.42 Billion
• Earnings Per Share (EPS, TTM): $4.18
• Profit Margin: 7.35%
• Return on Equity (ROE): 21.93%
• Return on Assets (ROA): 6.58%
• Return on Invested Capital (ROIC): 9.22%

Analysis:
Amazon’s profitability has rebounded significantly, with net income increasing by 239.80% in the TTM period. The profit margin of 7.35% is healthy for a company with significant revenue and operating expenses. ROE and ROA indicate efficient use of equity and assets to generate profits. The ROIC of 9.22% shows Amazon’s effectiveness in allocating capital to profitable investments.

c. Cash Flow

• Operating Cash Flow (TTM): $107.95 Billion
• Capital Expenditures (CapEx): -$59.61 Billion
• Free Cash Flow (FCF): $48.34 Billion
• Free Cash Flow Per Share: $4.61
• FCF Margin: 8.00%

Analysis:
Amazon generates substantial operating cash flow, reflecting strong cash generation from its core businesses. After accounting for significant capital expenditures—primarily investments in infrastructure, fulfillment centers, and technology—the free cash flow remains robust at $48.34 billion. Positive FCF allows Amazon to invest in growth initiatives, reduce debt, and enhance shareholder value.

d. Balance Sheet

• Total Assets: $554.82 Billion
• Total Liabilities: $318.37 Billion
• Total Debt: $157.84 Billion
• Cash & Cash Equivalents: $89.09 Billion
• Net Cash Position: -$68.75 Billion
• Current Ratio: 1.10
• Debt-to-Equity Ratio: 0.67
• Altman Z-Score: 4.84 (Indicates low risk of bankruptcy)

Analysis:
Amazon’s balance sheet shows substantial assets, but the company has a net debt position of -$68.75 billion due to high total debt exceeding cash reserves. The current ratio of 1.10 suggests adequate short-term liquidity. The debt-to-equity ratio of 0.67 indicates moderate leverage. The Altman Z-Score of 4.84 suggests that Amazon is financially healthy with a low risk of financial distress.

3. Valuation

• Price-to-Earnings (PE) Ratio (TTM): 45.70

• Forward PE Ratio: 37.03
• Price-to-Sales (PS) Ratio: 3.28
• Price-to-Book (PB) Ratio: 8.48
• Price-to-Free Cash Flow (P/FCF) Ratio: 41.50
• PEG Ratio: 1.68
• Enterprise Value (EV): $2.08 Trillion
• EV/EBITDA: 19.94
• EV/EBIT: 38.16

Analysis:

• PE Ratios: The trailing PE of 45.70 and forward PE of 37.03 indicate that the stock is trading at a premium, reflecting investor confidence in future earnings growth.
• PS and PB Ratios: The PS ratio of 3.28 is reasonable for a company with strong revenue growth, while the PB ratio of 8.48 suggests the stock is valued significantly above its book value.
• P/FCF Ratio: At 41.50, the P/FCF ratio is relatively high, indicating that investors are paying a premium for the company’s free cash flow.
• PEG Ratio: A PEG ratio of 1.68 suggests that the stock price may be high relative to its earnings growth, but still within acceptable ranges for a growth company.
• EV Multiples: The EV/EBITDA and EV/EBIT ratios are elevated, reflecting high enterprise value relative to earnings.

Conclusion:
Amazon’s valuation metrics indicate that the stock is priced for growth, with investors willing to pay a premium based on expectations of continued revenue and earnings expansion.

4. Market Performance

• Current Stock Price: $191.16
• 52-Week Range: $118.35 – $201.20
• 52-Week Price Change: +45.62%
• Beta: 1.15
• Average Volume (20 Days): 37,832,648
• Relative Strength Index (RSI): 61.53
• Dividend Yield: N/A (No dividends paid)
• Last Stock Split: June 6, 2022 (20:1 split)

Analysis:
Amazon’s stock price has increased by 45.62% over the past year, indicating strong market performance and positive investor sentiment. The beta of 1.15 suggests the stock is slightly more volatile than the overall market. The RSI indicates neutral momentum, neither overbought nor oversold.

5. Financial Health and Risks

a. Liquidity

• Current Ratio: 1.10
• Quick Ratio: 0.84

Analysis:
Amazon’s liquidity ratios are adequate, with the current ratio above 1, indicating the company can meet its short-term obligations. The quick ratio below 1 suggests that inventory plays a significant role in current assets, typical for a retail company.

b. Leverage

• Debt-to-Equity Ratio: 0.67
• Debt-to-EBITDA Ratio: 1.34
• Interest Coverage Ratio: 19.76

Analysis:
The debt-to-equity ratio indicates moderate leverage. The debt-to-EBITDA ratio of 1.34 shows that debt levels are manageable relative to earnings. A high interest coverage ratio signifies that Amazon can comfortably cover its interest expenses.

c. Operational Risks

• Competition: Amazon faces intense competition in e-commerce from companies like Walmart, Alibaba, and niche online retailers, as well as in cloud services from Microsoft Azure and Google Cloud.
• Regulatory Scrutiny: The company is subject to antitrust investigations and regulatory pressures globally, which could lead to fines, operational restrictions, or forced changes in business practices.
• Supply Chain Disruptions: Global supply chain issues can impact inventory levels, delivery times, and operational costs.
• Labor Relations: Challenges related to employee unionization efforts, working conditions, and wage pressures could affect operating costs and reputation.
• Cybersecurity Threats: As a major online retailer and cloud service provider, Amazon is a potential target for cyber attacks, which could compromise data and disrupt services.

d. Market Risks

• Economic Conditions: Economic downturns can reduce consumer spending and business investments, impacting retail sales and AWS revenue.
• Currency Fluctuations: With international operations, exchange rate volatility can affect financial results.
• Technological Changes: Rapid technological advancements require continuous innovation to stay competitive.

e. Shareholder Considerations

• No Dividend Payments: Amazon does not pay dividends, reinvesting earnings back into the company for growth.
• Share Dilution: The number of shares outstanding increased by 3.26% over the past year, which may dilute existing shareholders’ ownership.
• Stock Repurchases: Minimal share buybacks suggest limited efforts to offset dilution or return capital to shareholders.

6. Conclusion

Pros:

• Strong Revenue Growth: Consistent growth across business segments, with significant contributions from AWS.
• Diversified Business Model: Multiple revenue streams reduce reliance on a single market.
• Market Leadership: Dominant position in e-commerce and cloud services.
• Robust Cash Flow: Strong operating and free cash flow support investments in growth initiatives.
• Financial Health: Solid balance sheet with manageable debt levels.

Cons:

• High Valuation Multiples: Elevated PE and EV multiples may limit upside potential and make the stock sensitive to earnings disappointments.
• Regulatory Risks: Potential antitrust actions and regulatory changes could impact operations and profitability.
• Competition: Intensifying competition could pressure margins and market share.
• Profit Margin Pressure: Retail operations generally have lower margins; increased costs could affect overall profitability.
• Dependence on AWS: While AWS is a growth driver, over-reliance on this segment could pose risks if market dynamics change.

Disclaimer:
This analysis is for informational purposes only and does not constitute investment advice. Investing in securities involves risks, including the potential loss of principal. Investors should conduct their own research or consult a financial advisor before making investment decisions.