Amazon headquarters located in Silicon Valley

The new Amazon – Is Amazon a good stock to buy?

Amazon’s whole new business mix

View AMZN’s fundamental data. Annual and quarterly. 100% free.

Proving its many critics wrong, over the past ten years, Amazon has successfully diversified into not just one but several new massive revenue channels.

Is amazon a good stock to buy

E-commerce

Amazon Web Services (AWS)

Third-Party Services

Advertising

Subscription Services

Impressive growth prospects

Amazon’s growth prospects are strong and structural. The company has been extremely successful in leveraging its dominance in e-commerce for the benefit of various business lines. Quarterly revenue growth was in the double digits in each of the past four quarters – an impressive feat for a company with over $500B in annual revenue.

is amazon a good stock to buy revenue growth

Long-term revenue drivers

The drivers behind Amazon's growth

Advertising, which is closing in on $50B in annual revenue, grew by as much as 27% in the past year. AWS remains a powerhouse, buyoed by its cutting-edge cloud computing and AI solutions. The cloud business grew by 13% year-on-year. Amazon’s investment in content creation through Prime Video and its expansion into new markets generated an annual increase of 13% in subscription revenue.

These factors, coupled with Amazon’s relentless innovation and customer-centric approach, position it well for sustained growth and market leadership in the coming years.

Profit growth in excess of revenue growth

Amazon’s profit is growing at a higher rate than its revenue, reflecting the company’s strategic focus on high-margin segments. In 2024, net profit is projected to grow at a rate of 46%. In 2025, net profit growth is expected too slow to a still impressive rate of 27%. By comparison, revenue is forecast to grow at 4% and 11% in 2024 and 2025 respectively.

Profitability and margins

Amazon’s focus on high-margin businesses has driven its profitability. Consequently, Amazon’s operating income has seen a marked increase, underscoring the effectiveness of the company’s revenue diversification strategy.

The rise in its EBITDA margin is impressive. It almost tripled in less than years from just 6% in Q2 2022 to 17% in Q1 2024.

AMZN EBITDA margin

Valuation: Looking beyond the Price/Earnings ratio

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For the full year 2023, net cash flow from operations was almost three times as high as net income – $85B versus $30B. With a ratio of 23x price to operating cashflow, Amazon’s valuation looks a lot less lofty compared to the earnings-based valuation. Amazon is off to a great start in 2024. Its operating cashflow was up 4-fold in Q1 2024. It is now likely that it will surpass the $100B mark this year.

Wallstreet analysts see material upside

Analysts have built in Amazon’s strong business prospects into their price targets. For them, the answer to the question is Amazon a good stock to buy is a clear yes.

The average analyst price target is currently at $221 – 21% above the stock’s current price of $186. Analysts have consistently raised their target price after starting off the year at $179. We believe this trend will continue. The market is playing catchup.

In conclusion – Is Amazon is a good stock to buy?

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