Amazon Stock Is Undervalued

Amazon’s stock (NASDAQ
NDAQ
: AMZN) has gained roughly 23% YTD as compared to a 7% increase in the S&P500 index over the same period. However, at its current price of $104, the stock is trading 21% below its fair value of $132 – Trefis’ estimate for Amazon’s valuation. The company posted better-than-expected results in the first quarter of 2023, with net sales increasing by 9% y-o-y to $127.4 billion. It was due to an 11% rise in the North America segment and a 16% growth in Amazon
AMZN
web services revenues. However, the international segment witnessed stagnant growth in the quarter. Further, the other expense figure was reduced from -$8.6 billion to -$443 million. Notably, the year-ago figure included a valuation loss of $7.6 billion from an equity investment in Rivian Automotive. Overall, the net income improved from -$3.8 billion to $3.2 billion.

The company’s top line grew 9% y-o-y to $514 billion in FY2022, driven by a 13% increase in North America and a 29% jump in the AWS unit. On the flip side, the international segment posted negative growth (down 8% y-o-y). Further, the profitability numbers suffered in 2022 because of a significant spike in non-operating expenses. Altogether, the firm reported a net loss of $2.7 billion in the year.

Moving forward, AMZN expects the revenues to remain between $127 billion to $133 billion in Q2 2023. Overall, we estimate Amazon’s revenues to touch $546.5 billion in FY2023. Additionally, the adjusted net income margin is likely to improve in the year, resulting in a net income of around $15 billion and revenue-per-share of $54.14. This coupled with a P/S multiple of just above 2x will lead to a valuation of $132.

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