With a gain 22% in six months and 63% over the past year, besting the 21% rise in the S&P 500 index, Amazon (AMZN) stock has been one of the strongest performers in the Magnificent Seven. The e-commerce giant's growth and efficiency strategies have paid off handsomely.
Spanning the last four quarters, Amazon has not only delivered an increase of 565 basis points in its EBITDA margin, the company’s net profit margin has increased by 672 basis points, showing further signs that its cost-cutting initiatives are working as profits have significantly improved. Investors want to know if the company can maintain its strong momentum as the nation’s second-largest retailer is set to report fourth quarter fiscal 2023 earnings results after the closing bell Thursday.
In terms of overall execution, its management continues to push all of the right buttons. In the most recent quarter, Amazon revenue of $143.1 billion rose 11% year over year, while operating income saw a staggering year over year increase of 343%. The company’s efforts to diversify revenue streams is taking share, with Q3 third-party merchant revenue growing 20%. Just as impressive, non-goods services, including subscription services, AWS, and advertising, generated Q3 revenue of $46.5 billion, growing 16% year over year.
All told, Amazon now has slimmer cost profile which will lend to faster earnings growth in the quarters ahead. From a valuation perspective, while Amazon stock is not as cheap as it was six months ago, the shares still look like a bargain relative to the company’s long-term potential. On Thursday beyond a top- and bottom line beat, investors will want strong profit guidance to support the long-term investment thesis.
In the three months that ended December, the Seattle-based company is expected to earn 80 cents per share on revenue of $166.15 billion. This compares to a year ago when earnings were 3 cents per share on revenue of $149.2 billion. For the full year, earnings are expected to be $2.47 per share, reversing a year-ago loss of 27 cents, while full year revenue of $524.62 billion would rise 2.1% year over year.
For further evidence that Amazon's cost-cutting initiatives are working, the full-year projected EPS of $2.47 per share, reversing a year-ago loss of 27 cents is the strongest sign as the company's profits have significantly improved across various segments. Some of the recent cost-saving measures include shutting down unprofitable businesses, reducing its global headcount and reprioritizing resources. Amazon, however, still remains committed to investing in the long-term potential of its business.
The effectiveness of these initiatives were evident in the company’s financial results. In the third quarter, Amazon beat on both the top and bottom lines, posting adjusted EPS of 94 cents per share which beat estimates by 34 cents. The bottom line beat was driven by a combination of high-margin advertising revenue and higher unit revenue which helped the company spread its fixed costs across a greater volume of revenue.
Q3 revenue of $143.1 surpassed Street estimates by $1.54 billion, rising 12.6% year over year. North America segment revenue increased 11% year-over-year to $87.9 billion, while International revenue grew 16% year over year to $32.1 billion. During the quarter, the AWS segment revenue increased 12% year over year to $23.1 billion. While the growth missed estimates, CEO Andy Jassy affirmed that "AWS' year-over-year growth rate continued to stabilize in Q3.”
All told, from a valuation perspective, Amazon stock should remain a staple in any growth portfolio for the next 12 to 18 months. On Thursday beyond a top- and bottom line beat, investors will want strong profit guidance to support the long-term return investment thesis.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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