Amazon announced a $10 Billion shares repurchase program. The $10 billion stock buyback program was shocking to investors. The company has never repurchased shares in significant numbers in the past. The program will have long-term effects, even though $10 billion represents less than 1% the company’s total market capitalization.
Amazon is expanding its reach into new countries and strengthening its distribution network to expand its e-commerce business globally. Amazon’s recent announcement of its first Australian sort centre demonstrates this. This center has huge potential for e-commerce.
Amazon announced a 20:1 stock split on March 9. A stock split will take place on June 6, 2018. Stockholders who held AMZN stock before the split will be able to receive 20 times as many shares. If all other factors are unchanged, the share price will be one-twentieth what it was before the split.
Amazon’s recent performance was not as good as the stock market. Analysts still recommend Amazon shares as a buy with a price estimate at $4,200 per share. It remains on the Top Pick stock list of the investment bank. The price target, if reached, would be almost 30% higher than the stock’s current value.
Amazon reported a net loss in Q1 2022 earnings of $3.8 billion.
Zacks Investment analysts have rated this stock a short-term hold.
Amazon Stock Forecast: Bull Case
Profitable Cloud Business: While Amazon’s main revenue stream comes from ecommerce, cloud business (Amazon Web Services), is rapidly gaining attention. AWS revenue in 2021 was $62.2 billion, an increase of 37% YoY. It could soon be a $100 billion revenue stream.
Rivian and Meta have formed new partnerships. AWS’s new customers include Rivian and Under Armour as well as Goldman Sachs, Meta Platforms, and many more. This speaks volumes of cloud-based business demand and AWS is a strong competitor to Google. AWS’s operating profit of $18.5 billion in 2021 was an impressive 37% increase over the previous year.
Advertising Sector – The next gem is the advertising sector at Amazon. In the quarter’s latest earnings, Amazon split its advertising revenue for the first-ever time. The fourth quarter saw a 33% increase in revenue to $9.7 billion, an increase of $33 YoY. Amazon offers advertising services to a wide range of customers, including suppliers and customers. The live broadcast of sporting events can increase revenue significantly in the future. Amazon recently signed a 11-year agreement with NFL to telecast Thursday Night Football.
Strong Q4 Results- Wall Street analysts were skeptical about Amazon’s Q4 results, which were announced February 3, 2022. The company’s earnings have risen to $14.3 billion, nearly double the income from previous years. Surprisingly, $11.8 billion of the $14.3 billion earned by Amazon came from its recent investment in Rivian Automobile. Amazon’s share price rose 13.5% on Friday, 04.02.2022, thanks to AWS and the advertising sector. This gain led to a $190 billion increase in its market value.
Amazon announces an increase in Prime Membership fees in the US – Amazon revealed in its Q4 results call that it will be increasing Prime Membership fees in the US to offset shipping losses and labour costs. The monthly fee was increased to $12.99 from $14.99, and the annual fee to $139 from $119. Although this move will likely result in some loss of retention, Amazon has over 200 million subscribers and is prepared to take a hit to bring its core ecommerce business back on track.
Amazon Stock Forecast: Bear Case
Persistent Labour Problems- Recently, the Retail, Wholesale, and Department Store Union (RWDSU), accused Amazon of illegally interfering in the election for union members in Alabama. According to Amazon, officials removed union literature from the break room and restricted access. Although it may be true or false these unfair treatment accusations against Amazon are not new. It appears that Amazon wants to stop unionization, rather than improve relations with workers. This could be a problem for Amazon’s future business.
Lower Operating Margin in E-Commerce Business – Amazon reported $407 billion revenue for the 2021 calendar year. However, YoY operating margin has declined despite strong top line growth. Operating margin in North America was 3%. This represents a 1% decrease from 2020. The decline in operating profit was caused by supply chain disruptions and labour supply issues. These problems are expected to persist in 2022.
Declining Cash Flow: Amazon’s trailing 12-month cashflow decreased by 30% to $46.3 billion. Free cash flow was negative $9.1 million for the 2 months ended 31/12/2021. The trailing 12-month ended 31 December 2020 saw positive free cash flow of $31.0 billion.
Amazon stock price prediction: There are many growth opportunities for the near future
Amazon is preparing to open large-scale physical stores offline and will be battling Walmart. This improves the stock’s prospects for long-term investment.
The Amazon physical outlet stores that will open in Ohio and California are almost one-third the size of traditional Walmart stores. However, it’s still a long way for Amazon.
Amazon launched a variety of electronic gadgets on 28 September, including smart displays as well as a home robot.
“Astro” is Amazon’s first robot. It will serve as a security guard, companion, and smart display on a mobile phone. It combines artificial intelligence, voice, edge computing and computer vision.
Amazon is tapping into a $350 billion market to purchase prescription drugs. Amazon Pharmacy was launched late last year to disappointment of drugstores, drug whole sellers and other drug retailers.
It is expected that the unit will offer a discount of 80 percent for generic drugs and a discount of 40 percent for brand-name medications.
Amazon Stock Forecast
Amazon’s core business of e-commerce is experiencing difficulties due to labor issues in North America and inflation fears. It is also troubling that Amazon’s management has not taken the initiative to address these labor issues or get them covered in the media. Covid 19-related supply chain disruptions will continue at least until 2022. Online sales are unlikely to improve in the future.
Amazon Inc has excelled at diversifying in various verticals to make them profitable. AWS and the advertising industry are two examples. Its investment in Rivian Automobile is now paying off.
It is interesting to note that Amazon Inc. has traded historically in the range 20 to 35 cash per share from its operations. Even a small ratio of 25 multipliers to the 2023 consensus estimate at $190 would indicate a projected price for $4750.
Amazon might remain flat in the uncertain bear market of 2022 but it offers an opportunity to buy bluechip stock long-term. It diversifies in every field possible to boost its profitability.
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