However, it’s not all bad news.
Indeed, based on a discounted cash flow analysis, the company has a fair value of just over $3,183, implying an upside of around 49% at today’s market prices.
And many Wall Street insiders would tend to agree, with 37 out of 53 analysts rating the stock a “strong buy” in the last 90 days. The consensus rating for Amazon among analysts is a a price target of $3,644, suggesting even more upside opportunity for deal-seekers now.
Furthermore, Amazon’s price-to-sales multiple of 2.01x is close to a 6-year low, while its trailing twelve month cash from operations stands at an industry-beating $39.3 billion.
Cloud Computing Is A Flywheel Powerhouse
With its $62 billion of annual sales in 2021, Amazon Web Services takes top-spot as the leading cloud provider in the world today. In fact, the segment is expanding at a rapid clip right now, having turned in a quarterly revenue of $18.4 billion
, making the firm’s cloud business the fastest growing wing of the entire company.
Bu this shouldn’t really surprise investors. Amazon has an illustrious history in the cloud computing space, having effectively taken the first-mover advantage in the nascent technology as early as the beginning of the new millennium.
Indeed, having launched Merchant.com – its first e-commerce-as-a-service platform – AMZN quickly recognized the transforming power that the cloud could have in all aspects of the newly developing Internet ecosystem.
What might have shocked even Jeff Bezos
, however, is just how important AWS would become to Amazon’s enterprise as a whole. The cloud has found its way into all manner of applications, and is offering businesses and institutions huge cost savings as they continue along the never-ending path of digitalization.
And this is where AWS really shines. The operation benefits from efficiencies of scale
, as Amazon can reduce infrastructure expenditures as it attracts more and more customers to its platform. And as associated costs go down, those savings can be passed onto new customers, driving down costs even further. The flywheel effect is strong, and Amazon exploits this to the full with the lowest pay-as-you-go prices in the space.
Amazon’s Ad Business Makes Perfect Sense
When you think about prime Internet advertising space, it’s usually Alphabet and its various subsidiaries that first comes to mind. But Amazon, as the world’s premier online marketplace, might actually be more of a fit in many ways.
In fact, every visitor to Amazon’s platform is there with the intention of buying something – a scenario that most advertisers dream about. But the same can’t be said about those who log into YouTube, or those who happen to frequent Google’s popular search engine.
And because of this potential, Amazon has the power to charge a premium for its ads; merchants and sellers know they have a captive audience, and they’re more than willing to pay extra for it.
This becomes obvious when you look at AMZN’s recent ad sales. In the last quarter, the company generated $7.88 billion in revenue from advertising, growing its total by 25% from the equivalent reporting period this time last year.
Interestingly, that increase was the smallest increment that Amazon has seen over the last six quarters. In fact, in the first quarter 2021, the company grew its ad revenues by 76%, while it grew them even more in the second quarter 2021, at 88%.
Indeed, its highest overall sales volumes occurred in the final quarter of last year, when the firm made $9.72 billion on its advertising top-line.
One explanation for the slowing revenue growth could simply be that advertising is still only a tiny part of Amazon’s overall business operation. But that’s going to change.
Other retailers like Walgreens, Instacart, and Walmart
are all starting to get their act together on the advertising game, in many cases building their own media platforms to get ahead of the competition
No doubt Amazon is monitoring the situation carefully, and it’s telling that the company has arrayed a team of top executives – including Colleen Aubrey
and Alan Moss – to begin pitching to advertisers and working directly with marketers.
Only time will tell how successful AMZN will be in its efforts to broaden its advertising scope. But right now, with its 200 million Prime membership subscribers, there’s still a lot of fertile ground on which to harvest for the foreseeable future.