AMZN

Is Amazon Stock a Buy?

Amazon (NASDAQ: AMZN) posted its first-quarter earnings on April 30. The e-commerce and cloud giant's revenue rose 13% year over year to $143.3 billion, beating analysts' estimates by $764 million, as its diluted earnings more than tripled to $0.98 per share and cleared the consensus forecast by $0.15.

Amazon's stock rose slightly after that earnings beat, but does it still have room to run after rallying 70% over the past 12 months? Let's see why investors are bullish on Amazon again -- and if it can head even higher over the next few quarters.

An Amazon Prime delivery truck.

Image source: Amazon.

Its core businesses are growing again

During its first quarter, Amazon generated 60% of its sales from its North American segment, 22% from its international segment, and 17% from Amazon Web Services (AWS), the world's largest cloud infrastructure platform. Here's how those three core businesses fared over the past year.

Metric

Q1 2023

Q2 2023

Q3 2023

Q4 2023

Q1 2024

North America sales growth (YOY)

11%

11%

11%

13%

12%

International sales growth (YOY)

1%

10%

16%

17%

10%

AWS sales growth (YOY)

16%

12%

12%

13%

17%

Total sales growth (YOY)

9%

11%

13%

14%

13%

Data source: Amazon. YOY = Year over year.

Amazon's North American and international retail segments stabilized over the past year after lapping the e-commerce sector's post-pandemic slowdown in 2022. Its North American business benefited from faster delivery speeds, which drove its shoppers to buy more everyday essentials, as well as the expansion of its integrated advertising business. Its international growth was driven by its ongoing expansion into higher-growth markets.

Growth at AWS also accelerated over the past two quarters and allayed concerns that it was losing ground to its two closest competitors, Microsoft's Azure and Alphabet's Google Cloud, in the cloud race. Amazon attributed that acceleration to companies upgrading their cloud infrastructure to support bigger workloads, large language models, and new generative artificial intelligence (AI) applications.

Its operating margins are soaring

As Amazon's sales growth stabilized, its operating margin improved across all three of its core businesses over the past year.

Metric

Q1 2023

Q2 2023

Q3 2023

Q4 2023

Q1 2024

North America operating margin

1.2%

3.9%

4.9%

6.2%

5.8%

International operating margin

(4.1%)

(3%)

(0.3%)

(1%)

2.8%

AWS operating margin

23.8%

24.4%

30.3%

29.8%

37.6%

Total operating margin

3.8%

5.7%

7.8%

7.8%

10.7%

Data source: Amazon.

Its North American margins expanded as it generated more sales from its higher-margin third-party sellers, consolidated multiple deliveries into single packages, and reduced its logistics costs by regionalizing its operations. Its international margin finally turned positive as economies of scale kicked in and reduced its total expenses. Both segments benefited from the expansion of its advertising business with more sponsored product ads and streaming video ads.

Meanwhile, AWS reduced its operating expenses by trimming hundreds of jobs and reducing its infrastructure and fixed costs. AWS's rising operating margins should enable Amazon to continue subsidizing the growth of its lower-margin retail businesses with its higher-margin cloud revenue.

Its outlook is stable, but don't forget Rivian

For the second quarter, Amazon expect its sales to rise 7%-11% year over year, with a midpoint operating margin of 8.2%. For the full year, analysts expect its sales to rise 11% as its operating margin expands three percentage points to 9.4%.

That outlook is stable, but investors shouldn't forget about Amazon's money-losing investment in struggling electric-vehicle maker Rivian Automotive (NASDAQ: RIVN). Its net income of $10.4 billion in the first quarter was reduced by a whopping pre-tax valuation loss of $2 billion on Rivian, compared with a pre-tax valuation loss of $0.5 billion a year ago.

On the bright side, Rivian's stock now trades at less than two times this year's sales, so its downside might be limited until it ramps up its production as it narrows its net losses. Amazon doesn't plan to sell its stake in Rivian anytime soon, and it's still relying on the EV maker to add 100,000 electric delivery vans to its fulfillment network by the end of the decade.

Amazon's investors should keep an eye on Rivian's performance, but analysts still expect Amazon's net income to increase 57% this year as its earnings per share grows 52%.

Is it the right time to buy Amazon?

Amazon's stock is trading at only about 5% below its all-time high as of this writing, but it still looks reasonably valued at 41 times this year's earnings. If you believe Amazon will continue to expand its e-commerce and cloud businesses while consistently expanding its operating margin, then it's still a great time to scoop buy its stock.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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