We came across a bullish thesis on Amazon.com, Inc. (AMZN) on Kroker Equity Research’s Substack by Kroker Equity Research. In this article we will summarize the bulls’ thesis on AMZN. Amazon.com, Inc. share was trading at $187 as of Sept 12th.
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Amazon remains a dominant force in the online retail and cloud computing sectors, making it a compelling investment case for the long term. With a strong brand presence and a diverse range of offerings, Amazon goes beyond just being a marketplace; it’s a powerful conglomerate spanning cloud services, advertising, logistics, and more. Amazon Web Services (AWS) is its most profitable segment, holding a leading position in the cloud computing market. AWS enjoys 30%+ margins, allowing it to subsidize other parts of Amazon’s business. However, increasing competition from Microsoft Azure and Google Cloud is gradually reshaping the competitive landscape. Microsoft, with its deep integration into enterprise environments, and Google’s focus on AI, machine learning, and data analytics, are steadily gaining market share, creating a more balanced competitive environment. Despite these challenges, AWS remains a key player, and Amazon’s diverse revenue streams support its resilience.
One critical area where Amazon falls short is its segment reporting. The company aggregates a vast array of services into broad categories, making it difficult for investors to assess the profitability and risks of its diverse business lines. For example, while the North American segment is more mature and profitable, the International segment still struggles to achieve sustainable profitability. More granular data on Amazon’s revenue by product category would provide a clearer picture of its growth drivers and segment profitability.
Amazon Prime is another significant contributor to the company’s success, evolving from a free-shipping program to a comprehensive subscription service with over 200 million global members. The program enhances customer loyalty and drives higher spending among subscribers, contributing to Amazon’s overall growth. The growth of Amazon’s Subscription and Advertising Services is notable, both nearing an annual run rate of $100 billion. Meanwhile, physical stores, including Whole Foods Market, remain the smallest and slowest-growing revenue stream.
Amazon is highly focused on cash flow, with its latest earnings report revealing a trailing twelve-month cash flow from operations exceeding $100 billion and free cash flow approaching $50 billion. Despite significant capital investments in logistics and cloud infrastructure, Amazon has reached a scale where free cash flow continues to grow. This financial strength positions Amazon well for future shareholder returns, even though it currently prioritizes growth and strategic investments over dividends and share buybacks.
Valuing Amazon is complex due to its diverse and rapidly expanding businesses. Despite these challenges, Amazon’s strong financial position and growth potential make it an attractive option for long-term investors. With its forward valuation multiples near their lows over the past three years, Amazon appears to be fairly valued, and its continued growth in free cash flow and earnings per share supports a bullish outlook for the stock.
Amazon.com, Inc. is on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 308 hedge fund portfolios held AMZN at the end of the second quarter which was 302 in the previous quarter. While we acknowledge the risk and potential of AMZN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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