ii view: Amazon overseas retail ops drive profit beat
Investing heavily in artificial intelligence and with Alexa devices sat awaiting instruction across homes in the US and overseas. We assess prospects for this Magnificent 7 company.
1st November 2024 11:27
by Keith Bowman from interactive investor
Third-quarter results to 30 September
- Net sales up by 11% to $159 billion (£89 billion) year-over-year
- Net income up 55% to $15.3 billion
- Earnings per share of $1.43, up from $0.94 per share
Guidance:
- Expects Q4 sales of between $181.5 billion and $188.5 billion, giving year-over-year growth of 7-11%
Chief executive Andy Jassy said:
“As we get into the holiday season, we’re excited about what we have in store for customers
“We kicked off the holiday season with our biggest-ever Prime Big Deal Days and the launch of an all-new Kindle lineup that is significantly outperforming our expectations.”
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ii round-up:
Tech titan Amazon.com Inc (NASDAQ:AMZN) detailed sales and earnings which beat Wall Street expectations, helped by an ongoing streamlining of its international retailing operations.
Third-quarter sales to late September climbed 11% to $159 billion, pushing adjusted earnings up 52% to $1.43 and ahead of analyst forecasts of $1.14 per share. Overseas retail moved from a loss to a profit year-over-year, with profits for the increasingly important cloud data hosting, or AWS business soaring 50% to $10.4 billion.
Shares in the Nasdaq 100 company rose 6% in afterhours US trading having come into this latest news up 23% year-to-date. That’s ahead of an 18% gain for the tech index itself in 2024 and similar to fellow cloud data hosting provider and owner of Google, Alphabet Inc Class A (NASDAQ:GOOGL).
Like fellow IT giants, Amazon’s capital expenditure rose significantly year-over-year, hitting $22.6 billion compared with $12.5 billion this time last year as it spent money on expensive AI capable NVIDIA Corp (NASDAQ:NVDA) computer chips in new datacentres.
Total Amazon capital expenditure for 2024 is expected to come in at around $75 billion, with management expecting an even bigger spend in 2025.
Accompanying Amazon estimates for the current fourth quarter point to sales of between $181.5 billion and $188.5 billion, potentially generating year-over-year growth of 7% to 11%.
An investor day focused on AI capabilities for the AWS cloud division is expected the week after US Thanksgiving (28 November). Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results.
ii view:
Started in 1994, Amazon sales during 2023 remained dominated by retail at almost two thirds, with cloud or AWS coming in at 16%, advertising 8%, and subscriptions and physical stores most of the balance. Geographically, the US continues to lead at almost 70% of 2023 sales, with Germany, the UK, and Japan, all notable others at around 5% to 6% each.
For investors, heightened borrowing costs continue to place pressure on disposable income. Competition in its various areas is intense, with the likes of Microsoft Corp (NASDAQ:MSFT) in the Cloud sector, Meta Platforms Inc Class A (NASDAQ:META) chasing ad related sales, and Chinese players such as PDD Holdings Inc ADR (NASDAQ:PDD) in the retail space competing hard on price. Government concerns regarding big-tech dominance have not gone away, while management’s previous referencing of global news events providing consumer distractions warrants consideration.
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More favourably, cost cuts given an arguable overspend during the pandemic continue to shine through. The founding retail business is now accompanied by significant other businesses such as AWS. Potential to expand the physical store portfolio persists, while investment in AI services continues, with the popularity of its Alexa devices offering potential.
For now, and while questions about appropriate tech company valuations persist, a consensus analyst fair value estimate above $220 per share suggest Wall Street remains optimistic about the longer term.
Positives
- Dominant position in online retailing
- Pushing AI initiatives and investments
Negativesu
- Government concerns for monopolistic powers
- Currency movements can hinder performance
The average rating of stock market analysts:
Buy
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