Amazon Stock (NASDAQ:AMZN)

Amazon.com, Inc.’s (NASDAQ:AMZN) earnings performance has not lived up to my hopes. Even so, I think the market is making a huge mistake by underestimating Amazon’s potential for growth.

Yes, Amazon didn’t make as much money as expected in the fourth quarter, but the company’s predictions for the first quarter of 2019 aren’t terrible, and neither is AWS’s growth potential, even though growth slowed in the fourth quarter.

The valuation, which has caused a big drop in Amazon’s sales multiple because investors don’t like the stock, is what I like best about the company right now.

As long as AMZN is as hated as it is now, I won’t feel bad about giving in to my greed and filling up the truck with things under $100.

Investors Should Look at AWS’s Growth Potential

The amount of money Amazon made in the fourth quarter was much less than what was expected just over a week ago. The company’s adjusted profits were only $0.03 per share, which was much less than the $0.17 per share that was expected by most people. In the quarterly report, Amazon’s growth prospects were questioned again, and the stock price has dropped back into the double digits.

Amazon stock is trading at $97.96 right now, and it has gone down for 5 days straight since the company announced earnings. I think that the drop in investor confidence is a chance to become a strong buyer of Amazon shares (which I am).

Besides the missed profit, I think the earnings report showed a lot more strength than investors are willing to see. First, Amazon’s net sales grew 9% year over year and 12% when FX was taken into account. This was down from 15% in the third quarter. Overall, Amazon’s fourth-quarter net sales were $149.2 billion, which was more than expected.

Amazon predicted that it would make $126.0 billion in net sales in 1Q-23. Even though it didn’t make enough money, which I think got too much attention, Amazon did well in terms of sales growth. The picture of net sales shows that all segments are growing well. For example, eCommerce sales went up by 7% year over year to $119.6 billion. Again, more than 80% of total net sales came from eCommerce. The rest came from Amazon Web Services (AWS), which is a cash cow for the company.

Amazon Web Services Growth Is Slowing Down

More than anything else, the fact that corporate leaders have said that Amazon Web Services growth is slowing down, which some investors have used as an excuse to sell Amazon’s shares during the downturn, has hurt Amazon’s stock price after earnings. Amazon executives also warned that AWS growth would slow even more in the first quarter because customers would spend less on AWS to keep costs down as the sector as a whole fell.

AWS is Amazon’s main source of income, and it had a string of record quarters during the epidemic. In the fourth quarter, AWS had net sales of $21.4 billion, which is a 20% increase from the same time last year. Operating income for the fourth quarter was $5.2 billion, which was down 2% from the same time last year and 10% when currency changes were taken into account.

In 2023, AWS Could Make as Much as $100 Billion

I think investors are too optimistic about how big AWS is and how much more money it could make. LTM revenue for AWS was $80.1 billion, and operating profits were $22.8 billion.

AWS makes Amazon a lot of money, and I think that even though some customers are cutting back on spending right now, AWS will still be Amazon’s cash cow in the long run, with big growth rates.

AWS could make just a little less than $100 billion in net sales in 2023. This would mean that the company grew by 25% each year and made $22–25 billion in operating profits.

Last year, AWS’s net sales went up 29% from the year before. This means that even if demand slows, AWS could still become an extremely successful $100 billion-a-year company for Amazon.

Amazon Is a Bargain

Amazon’s sales are expected to grow by 12.30% in 2024, to a total of $626.02 billion, which is equal to a 1.7x sales multiple.

Amazon’s market value is $1.1 trillion, which means the company won’t grow as quickly as it did when it first started out more than 20 years ago. However, I think it’s pretty impressive that a company with a market value of more than a trillion dollars can increase sales by double digits next year.

Most of this growth will come from AWS, but that doesn’t change the fact that Amazon is growing, even if it’s slow. Last year, Amazon’s sales growth was worth a lot more than it is now. In fact, AMZN was worth about twice as much as it is now. I don’t see any reason why Amazon couldn’t reach a valuation similar to what it was in 2021 in the next two or three years.

Why Amazon Stock Might Be Worth Less

I’m happy to say that I’m not completely neutral about Amazon and that I might be too excited about AWS, which is clearly having some growth problems.

Slowing growth, on the other hand, might just be a temporary thing because companies tend to spend more when times are good. This is why I think investors are overreacting right now.

Yes, I could be wrong about AWS, and the growth of the segment could stop for more than a quarter, but AWS will grow much faster than the eCommerce market.

One Last Thought

I think there are times to pounce and times to buy as few stocks as possible. When investors and valuations are driven by optimism, like they were last year, it’s time to be careful. But when the market pendulum swings the other way and investors become too cautious, it’s time to be greedy. No matter if AWS growth is slowing or not, Amazon is still a steal with a sales multiple that is hard to resist.

I think that investors will wonder why they didn’t make money from the selloff in two or three years.

Amazon stock costs less than $100, so I can’t help but want to buy one of the best-run, customer-focused multi-line businesses in the world.

Featured Image: Google Images @ istockphoto