Amazon’s stock (Nasdaq: AMZN) has reached new all-time highs following a double boost in the latest earnings report. The company is on the brink of joining the $2 trillion club, driven by a 4-percentage-point acceleration in AWS to a combined year-over-year growth of 17%, with a strong 25% growth in advertising revenue. AWS surpassed a $100 billion annualized run rate in the first quarter, with management noting that they are seeing higher absolute dollar growth quarter over quarter in AWS compared to elsewhere.
The company’s e-commerce is well-known, but AWS and advertising are the main growth drivers. The two segments combined to generate $37 billion in high-margin revenue in the last quarter. Analyst estimates project AWS and advertising to have a combined revenue rate of $160 billion by 2024. These segments are expected to represent a quarter of Amazon’s total revenue, driving a 221% year-over-year growth in earnings.
The growth in advertising revenue and accelerated growth driven by AI in AWS support Amazon’s momentum towards new all-time highs. There are also indications that this acceleration could continue as GPU supply comes online and Amazon Prime introduces ads on Prime Video.
In summary of the first quarter, revenues of $143.3 billion exceeded estimates by $0.8 billion, marking the fourth consecutive double-digit growth quarter with a 12.5% year-over-year revenue growth rate. Earnings per share increased by 216% year-over-year to $0.98, with gross profit up over 53% and operating income up 221% year-over-year.
AWS and advertising are set to exit 2024 with a combined annualized revenue rate of $160 billion, representing around 25% of Amazon’s estimated revenues for the fiscal year. These two segments are poised to create more value for Amazon, given the expansion of gross and operating margins they are driving.
Overall, Amazon’s valuation remains intact, with strong cash flow growth predicted for 2024 and beyond. The company’s stock is trading at reasonable valuations, with low PE ratios compared to historical data. Amazon is well-positioned to capitalize on the increasing demand for generative AI, driven by its multi-billion-dollar run rate in AWS AI products and advertising. The growth in these segments is creating an attractive valuation for the company.
In conclusion, Amazon’s strategic focus on AWS and advertising, along with its strong financial performance, positions the company for continued growth and value creation in the foreseeable future. The combination of these two high-growth segments is driving significant margin expansion and contributing to Amazon’s overall success.
(Source: Seeking Alpha)
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https://seekingalpha.com/article/4694756-amazon-stock-nearing-2-trillion-club-from-aws-growth-and-ads-catalyst
