Amazon is a smart stock because it has achieved success in many areas. Most consumers know it best because it is an e-commerce stock that seems to sell “everything.” Over time, this statement seems to become less exaggerated. The company’s latest move will bring Amazon into the pharmaceutical business. Like Amazon’s past retail initiatives, this move has caused fear among competitors. They have good reasons to worry. Thanks to Amazon Web Services (AWS), Amazon can afford the loss of this business. Despite its history as a retailer, Amazon has achieved success in creating a cloud infrastructure business. According to ParkMyCloud, today, it continues to lead the business, maintaining a higher market share than its counterparts such as Microsoft and Alphabet.
In addition, it is still the best performing part of the company. In the past 12 months, the operating margins of its North American and international retail divisions were 4.2% and 2%, respectively. However, AWS had an operating profit margin of 30% during the same period. Despite the low revenue, the net income of the AWS division continues to be higher than the North American and international divisions. In addition, this combined success of retail and cloud computing has brought its market value to approximately US$1.6 trillion. This makes it the third largest company by this measure, because it lags only behind Apple and Microsoft.
Amazon is still a revenue and cash flow machine In addition, this scale will not help Amazon’s development.
In the first quarter of 2021, net sales increased by 44% year-on-year to US$108.5 billion. This contributed to a 220% increase in quarterly net income of US$8.1 billion during the same period. This includes $1.7 billion that Amazon received from non-core sources. In addition, the company limited operating expenses growth to 41%, thereby achieving substantial profit growth. Investors should note that this exceeds the fiscal year 2020 net sales growth of 38% and net income growth of 84%. Like many retailers, as the United States emerges from the pandemic, it does not provide full-year guidance for 2021. Nonetheless, Amazon expects net sales in the upcoming second quarter to increase by 24% to 30% compared to the second quarter of 2020.
In addition, the fact that the date of Prime Membership Day in 2021 has fallen this quarter may further increase revenue.
Shareholders should also note that Amazon has generated $26.4 billion in free cash flow in the past 12 months, an increase of 8% over the previous 12 months. Amazon spent US$45.4 billion on property and equipment in the past 12 months, more than double the US$20.4 billion spent in the previous period. Nevertheless, although this expenditure limits the increase in cash flow, the liquidity of $73.3 billion makes Amazon one of the most robust balance sheets in existence. Investors responded that Amazon’s stock price rose by about 30% last year. In addition, its price-to-earnings ratio is about 60, and its earnings multiple has fallen to a multi-year low.
As stock growth lags behind the growth rate of net income, although the stock price exceeds $3,200 per share, Amazon is now more affordable.