We came across a bullish thesis on Amazon.com, Inc. (NASDAQ:AMZN) on Business Model Mastery’s Substack by The Antifragile Investor. In this article, we will summarize the bulls’ thesis on AMZN. Amazon.com, Inc. (NASDAQ:AMZN)’s share was trading at $222.11 as of Jan 7th. AMZN’s trailing and forward P/E were 47.46 and 35.46 respectively according to Yahoo Finance.
A close-up of an open laptop running a cloud-based digital experience platform.
Amazon has evolved from an online bookstore into a global commerce and technology powerhouse, with its success built on three key pillars: retail, cloud computing through Amazon Web Services (AWS), and advertising. Each pillar contributes uniquely to Amazon’s revenue machine, creating a business model that thrives on scale, efficiency, and diversification.
Amazon’s retail operation is the backbone of its business, generating 72% of its $524 billion revenue in 2023. This dominance is driven by a trifecta of strengths: competitive pricing, an unparalleled product catalog, and swift delivery. These elements create a seamless shopping experience, cementing Amazon’s position as the largest online retailer worldwide. However, the retail segment operates on thin margins due to the high costs associated with maintaining an expansive logistics network of warehouses, delivery vehicles, and workers. Gross margins in this segment remain constrained at 15-20%, with rising logistics and wage costs adding further pressure.
AWS, Amazon’s cloud computing division, showcases the company’s ability to achieve extraordinary profitability. While contributing just 16% of overall revenue, AWS delivers a remarkable 68% of Amazon’s operating profit, with operating margins of 30.5%. This makes it the company’s most lucrative segment. AWS leads the global cloud market with a 32% share, offering services like data storage and machine learning. Its scalable infrastructure and diverse offerings have made it indispensable for enterprise clients, highlighting its pivotal role in Amazon’s financial success.
Advertising, often overshadowed by Amazon’s other segments, is emerging as a hidden gem. By 2023, this business had grown to generate $45 billion annually, reflecting a 19% year-over-year increase. Integrated seamlessly with Amazon’s retail ecosystem, the advertising platform allows brands to target customers effectively during their shopping journeys. High operating margins of 30-40% make this segment a growing driver of Amazon’s overall profitability.
Amazon’s revenue is geographically concentrated, with 69% derived from North America and 31% from international markets. Challenges such as currency fluctuations and market saturation in developed regions have slowed global growth. Additionally, the company faces rising logistics expenses, regulatory scrutiny, and intensifying competition in the cloud market from Microsoft Azure and Google Cloud. However, Amazon’s adaptability and strategic expansions, such as its entry into healthcare, position it to capture significant future opportunities in a $4 trillion industry. These diverse strengths ensure Amazon remains a dominant player, capable of overcoming challenges and driving sustained growth.
Amazon.com, Inc. (NASDAQ:AMZN) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 286 hedge fund portfolios held AMZN at the end of the third quarter which was 308 in the previous quarter. While we acknowledge the risk and potential of AMZN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.