Leading technology company Amazon.com, Inc. (AMZN) beat analyst expectations in the first quarter of 2023, with revenue reaching $127.40 billion, surpassing the anticipated $124.50 billion. Amazon Web Services (AWS) generated $21.30 billion in revenue, beating the expected $21.22 billion, while advertising revenue stood at $9.50 billion, exceeding the projected $9.10 billion.

Although AWS sales grew nearly 16% during the first quarter, beating Wall Street’s estimates, they still slowed compared to the previous quarter’s 20% growth. Despite the revenue beat, AMZN’s sales growth remained in single digits after its weakest year for expansion as a public company.

For the second quarter of 2023, the company foresees revenue to come in between $127 billion and $133 billion, while analysts at Refinitiv anticipate sales of $129.80 billion for the same quarter. This outlook suggests a 5% to 10% year-over-year sales rise during the period.

Additionally, the company is making several moves to foster increased loyalty among Prime members, promote business-oriented purchases, and attract more small-business owners to use AMZN’s specialized services.

On June 27, AMZN announced it would offer Business Prime Duo at no cost to Amazon Prime members who make business purchases. Business Prime Duo, an Amazon Business membership, amalgamates business purchasing tools, exclusive business-only pricing on selected items, and prompt, complimentary business delivery.

Also, on May 17, the company unveiled a new lineup of Echo products. This introduction could benefit the company by offering customers more options and greater utility at a remarkable value. As the company continues to add generative AI-powered experiences for Alexa, every Echo device would enhance further throughout the year.

Such additions are expected to boost the company’s revenue streams. Rohit Prasad, senior vice president and head scientist for Alexa, said, “Customers around the world love Alexa as their trusted, personal AI—they’ve now purchased well over half a billion Alexa-enabled devices, and use of Alexa increased 35 percent last year.”

Shares of AMZN have gained 55.1% over the past six months to close its last trading session at $130.36.

Here is what could shape AMZN’s performance in the near term:

Mixed Financials

During the first quarter that ended March 31, 2023, AMZN’s net sales increased 9.4% year-over-year to $127.36 billion. Its operating income rose 30.1% from the year-ago value to $4.77 billion.

Moreover, the company’s net income and EPS came in at $3.17 billion and $0.31, compared to a net loss and loss per share of $3.84 billion and $0.38, in the prior year’s period, respectively.

However, as of March 31, 2023, the company’s cash and cash equivalents stood at $49.34 billion, compared to $53.89 billion as of December 31, 2022.

Solid Historical Growth

Over the past three years, AMZN’s revenue grew at a 21% CAGR. The company’s EBITDA rose at a CAGR of 16.4%. Moreover, the company’s total assets increased at a 28% CAGR during the same period.

Favorable Analyst Estimates

Analysts expect AMZN’s revenue to increase 8.5% year-over-year to $137.95 billion for the fiscal third quarter ending September 2023. The company’s EPS for the ongoing quarter is expected to rise 38.7% from the previous year’s period to $0.39. Moreover, the company surpassed its consensus revenue estimates in three of four trailing quarters.

Furthermore, AMZN’s revenue for the next fiscal quarter (ending December 2024) is expected to grow 9.9% year-over-year to $164.02 billion, while its EPS for the same period is expected to grow considerably from the prior year’s quarter to $0.50.

Stretched Valuation

In terms of forward non-GAAP P/E, AMZN is trading at 83.38x, 472% higher than the industry average of 14.58x. Its forward EV/EBITDA multiple of 16.31 is 69.9% higher than the industry average of 9.60. In addition, the stock’s forward Price/Book of 7.31x is 183.7% higher than the industry average of 2.58x.

High Profitability

AMZN’s trailing-12-month gross profit margin of 44.7% is 26.9% higher than the 35.24% industry average. Its trailing-12-month EBITDA margin of 10.90% is 2.3% higher than the industry average of 10.65%. Also, the stock’s trailing-12-month CAPEX/Sales of 11.98% is 274.9% higher than the 3.2% industry average, while its trailing-12-month asset turnover ratio of 1.20x compares to the industry average of 1.00x.

POWR Ratings Show Uncertainty

AMZN’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 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 and a B for Growth, consistent with its optimistic analyst expectations and solid financial performance. The stock also has a C grade for Stability, justifying its 24-month beta of 1.50.

AMZN is ranked #16 in the 58-stock Internet industry. Click here to access AMZN’s Value, Momentum, and Quality ratings.

View all the top stocks in the Internet industry here.

Bottom Line

Tech giant AMZN surpassed revenue expectations in its fiscal 2023 first quarter, yet its sales growth remained in single digits. Nevertheless, the company anticipates significant sales growth in the upcoming fiscal quarter, which could be attributed to its recent launches and strategic initiatives to increase purchases and boost its revenue streams.

While AMZN’s financials, profitability, and outlook remain sound, the company’s valuation doesn’t seem up to the mark. Therefore, waiting for a better entry point in this stock could be wise.

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

While AMZN has an overall POWR Ratings grade of C, equating to Neutral, one could also check out other stocks within the Internet industry that are overall A (Strong Buy) rated: Yelp Inc. (YELP), trivago N.V. (TRVG), and Travelzoo (TZOO).

What To Do Next?

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AMZN shares were trading at $131.01 per share on Monday morning, up $0.65 (+0.50%). Year-to-date, AMZN has gained 55.96%, versus a 16.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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