Amazon Stock Analysis – Yadnya Investment Academy

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Foreign Stock Analysis – Amazon

Introduction

Previously we have analysed two foreign tech giants – Apple and Microsoft. In this blog, let us analyse another popular foreign stock i.e Amazon doubling its stock price in last 2 years and has reached a market capitalization of $1.6 trillion.

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Amazon Stock Analysis

Stock Price over last 23 years

Amazon stock analysis
Amazon stock performance
  • As seen, stock price has grown at quite a faster pace from 2018. It currently has allocation of 4.8% in S&P 500 index and 10.4% in NASDAQ 100 which is quite commendable.

Growth Trends

Total Revenue
Amazon stock analysis
Amazon revenue growth
  • As seen, company is continuously growing and has registered a stellar CAGR of 27% over 10 year period. Company is displaying good growth even at bigger bases in the previous years.
Pre-Tax Profit, Net Profit and PAT Margin
Amazon stock analysis
Amazon Profit growth
  • As seen, company started earning substantial profits in 2016-2017. Prior to that profit was negligible and company was clearly in growth stage, wherein there were huge investments being made in the business.
  • Post 2017, company’s profits shot up and became more than 3x from its previous level. This resulted in healthy profit margins and it was reflected in company’s stock performance.
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Quarterly Revenue and PAT trend

Amazon stock analysis
Quarterly revenue and PAT trend
  • Company is posting strong performance on QoQ basis and has posted healthy profits to the tune of ~$14 bn in FY20 itself.

Revenue Mix (%)

Amazon stock analysis
Amazon Revenue Mix (%)
  • As seen, North America has highest contribution in the revenue mix, followed by international revenues and remaining from AWS.
  • As seen, revenue from North America has become ~3x , revenue from other international locations has grown ~2x and that of AWS has grown ~ 4x in the last 5 years.

Operating Income Mix (%)

Amazon stock analysis
Amazon Op. Income Mix (%)
  • As seen here, Amazon’s AWS business is very much profitable and has grown ~6x over the last 5 years. Similarly, North America business has shown healthy growth. However, international business is still loss making and has not yet achieved operating – break-even.

Segment Breakdown

Amazon stock analysis
Segment wise breakdown of revenues
  • As seen, company is far more than an online store as ~49% of revenues are contributed by physical stores, subscription services, third party services , etc.
  • Let us take a look at the competitors of Amazon in each of these segments.
Amazon stock analysis
Amazon competitors

Amazon Web Services (AWS)

Amazon stock analysis
AWS Revenue and Operating Margin (%)
  • This segment seems to be the dark horse segment for company with stellar 5 year CAGR of 47% and operating profit margins to the tune of 25-26% in 2019.
  • It is mainly because AWS did not have any competitor in the market since its launch for 4-5 years, which led to strong market share gains resulting in robust revenue and profit margins.
Amazon stock analysis
Amazon Web Services (AWS) Market share

R&D expense

Amazon stock analysis
Amazon R&D expense
  • As seen , company spends a handsome amount on its research and development expense, which accounts for ~13% of the sales.
  • Also, R&D expense as a % of gross sales is continuously increasing over the last decade.
  • Healthy R&D expense is also one of the main reasons behind amazon’s innovative product ideas and impeccable services.
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Key Financial Ratios

Amazon stock analysis
Amazon key financial ratios

Product Launches

Amazon stock analysis
New Product Launches

Acquisitions over the years

Amazon stock analysis
Number of acquisitions
  • As seen, company is consistently acquiring companies over the last decade.
  • Their largest acquisition was in 2017 worth $13.7 bn for a grocery store chain named – Whole Foods.
Amazon stock analysis
Biggest acquisitions
Amazon stock analysis
Amazon recent acquisitions

Conclusion

Amazon seems to be a perfect blend on retail and technology sector. Amazon is a pioneer in making e-commerce scalable across different geographies with commendable market shares. Their robust spend on R&D helps the company to launch new innovative products and services, which in turn open new markets for them.



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