Should You Buy Amazon Now, Ahead of the Holiday Season Surge?

Amazon.com, Inc. (AMZN) engages in the retail sale of consumer products, advertising, and subscription services through online and physical stores.

Ahead of the holiday season, AMZN introduced various initiatives, including Business Prime Rewards and a significant discount to Business Prime Essentials membership, which will exclusively benefit Business Prime members. Also, the company’s Prime Big Deal Days sale will open on October 8 - 9, where Prime Members will have exclusive access to millions of early holiday deals.

During the second quarter, Amazon entered into a strategic partnership with Intel Corporation to advance U.S.-based chip manufacturing. The coe 4vmpany also collaborated with Oracle Corporation for the launch of a new service, Oracle Database@AWS, enabling customers to access Oracle Autonomous Database.

Also, buy with Prime and Amazon multi-channel fulfillment recently expanded with its new capabilities and more brands. These new capabilities are part of AMZN’s focus on innovating in order to help businesses of all sizes increase their sales on their own online stores and other channels beyond Amazon.com.

The company reported its second-quarter results, where its AWS segment sales rose 18.7% year-over-year to $26.28 billion, and its total net sales were $147.98 billion.

Buoyed by the company’s last quarter performance, AMZN has provided the following guidance for the fiscal 2024 third quarter. It expects net sales between $154 billion and $158.50 billion. The company’s operating income is expected to be between $11.50 billion and $15 billion.

Shares of AMZN have surged 4.2% over the past month and 43% over the past year to close its last trading session at $185.13.

Let’s look at factors that could influence AMZN’s performance in the upcoming months.

Positive Recent Developments

On September 16, AMZN’s Amazon Web Services. Inc. (AWS) and Intel Corporation (INTC) announced a co-investment to help advance U.S.-based chip manufacturing through a multi-year, multi-billion-dollar arrangement encompassing products and wafers from Intel. Through INTC’s state-of-the-art technology, AWS will enhance its performance and efficiency.

The collaboration marked a significant expansion of the two companies' longstanding alliance to help customers power virtually any workload and accelerate the performance of artificial intelligence (AI) applications.

On September 9, AWS entered into a strategic partnership with Oracle Corporation (ORCL) to launch Oracle Database@AWS, a new service enabling customers to access Oracle Autonomous Database on dedicated infrastructure and Oracle Exadata Database Service within AWS.

By integrating ORCL’s services, AWS can enhance its cloud infrastructure, attracting more customers seeking robust database solutions. This further strengthens AMZN’s position in the cloud market, driving growth and broadening its service capabilities.

Robust Financials

AMZN’s total net sales increased 10.1% year-over-year to $147.98 billion during the second quarter that ended June 30, 2024. Its operating income grew 91% from the year-ago value to $14.67 billion. The company’s income before income taxes of $15.24 billion reflects a growth of 101.6% from the prior-year quarter.

In addition, the company’s net income and EPS came in at $13.48 billion and $1.26, indicating increases of 99.8% and 93.8% from the prior year’s quarter, respectively. Its free cash flow was $52.97 million for the quarter, up from $7.88 billion during the prior year’s quarter.

Also, as of June 30, 2024, the company’s total assets stood at $554.82 billion, compared to $527.85 billion as of December 31, 2023.

Solid Historical Growth

AMZN’s revenue and EBITDA have grown at respective CAGRs of 10.9% and 20.6% over the past three years. The company’s EBIT has increased at a CAGR of 22.4% over the same timeframe, while its net income and EPS have improved at CAGRs of 14.7% and 13.3%, respectively.

Also, the company’s tangible book value and total assets have grown at CAGRs of 29% and 15.5% over the past three years, respectively.

Favorable Analyst Estimates

Analysts expect AMZN’s revenue for the third quarter (ended September 2024) to increase 9.9% year-over-year to $157.18 billion. The consensus EPS estimate of $1.13 for the same quarter indicates a 20.6% year-over-year improvement. Moreover, AMZN has an impressive earnings surprise history, having topped consensus EPS estimates in each of the trailing four quarters.

For the fiscal year ending December 2024, the company’s revenue and EPS are expected to grow 10.5% and 63% year-over-year to $635.38 billion and $4.73, respectively. Also, Street expects its revenue and EPS for the fiscal year 2025 to increase 10.8% and 22.5% year-over-year to $704.27 billion and $5.79, respectively.

High Profitability

AMZN’s trailing-12-month EBIT margin of 9% is 13.7% higher than the industry average of 7.91%. Its trailing-12-month net income margin of 7.35% is 60.3% higher than the industry average of 4.59%. Similarly, its trailing-12-month gross profit margin of 48.04% is considerably higher than the industry average of 37.13%.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 21.93%, 9.22%, and 8.01% are favorable, compared to the industry averages of 11.26%, 6.17%, and 4.06%, respectively. AMZN's trailing-12-month Leveraged FCF margin of 9.79% is significantly above the 5.10% industry average.

POWR Ratings Reflect Promise

AMZN’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AMZN has an A grade for Sentiment, in sync with its favorable analyst estimates.

In addition, the stock has a B grade for Quality, consistent with its higher-than-industry profitability. It also has a B grade for Momentum,

AMZN is ranked #14 in the 52-stock A-rated Internet industry.

Beyond what I have stated above, we have also given AMZN grades for Value, Growth, and Stability. Get access to all the AMZN Ratings here.

Bottom Line

Amazon is a well-known multinational company operating as a retail seller of consumer products. The company’s strong industry footing worldwide, strategic collaborations, and solid financial performance position it for bright long-term prospects.

Further, as the holiday season nears, the company is all set to benefit from rising consumer spending. Amazon is welcoming the holidays with attractive initiatives and offers that will benefit different sections of its customers.

Given AMZN’s solid financials, accelerating profitability, and promising growth outlook, this stock could be an ideal buy now.

How Does Amazon.com, Inc. (AMZN) Stack Up Against Its Peers?

While AMZN has an overall POWR Rating of B, investors could also check out these other stocks within the A-rated Internet industry with A (Strong Buy) or B (Buy) ratings: Meituan ADR (MPNGY), Expedia Group Inc. (EXPE), and Fiverr International Ltd. (FVRR).

For exploring more A and B-rated internet stocks, click here.

What To Do Next?

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AMZN shares were trading at $185.33 per share on Wednesday afternoon, up $0.20 (+0.11%). Year-to-date, AMZN has gained 21.98%, versus a 20.91% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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