As has always been the case with large and sophisticated companies, Wall Street has difficulty determining how to value Amazon stock (NASDAQ:AMZN). It’s a challenging scenario because of how the corporation accounts for sales and operational profits (or, in the case of 2022, operating losses — more on that in a minute).
Market Analysis of Amazon Stock
Sales and operating profit are divided into two categories: “North America” and “International” (which are further subdivided into online and physical store sales, third-party seller services, advertising, and subscriptions), as well as “AWS.”
As great as these companies are, Amazon’s e-commerce empire no longer pays the bills for shareholders. That is the responsibility of AWS, the high-tech cloud colossus that is still thriving and insanely wealthy.
AWS contributed more than half of Amazon’s operating profit in the first half of 2021, accounting for just 12% of total sales. Things have changed radically this year as e-commerce has stalled, and Amazon has been substantially spending to promote its next surge of growth. Because of AWS’s sustained substantial expansion, the cloud sector currently accounts for approximately 15% of sales and is the only one that generates positive operating profitability.
Nonetheless, operational profit has been slashed over the previous year as North America and International have returned to the red. The market seems to be following this headline statistic and has penalized Amazon shares appropriately while ignoring AWS’s steady rise. As of this writing, shares are down more than 40% from their all-time high.
Buy one AWS and receive a free e-commerce empire.
Amazon has a market capitalization of $1.14 trillion after suffering market repercussions. But here comes the intriguing part: If AWS were a standalone company today valued at $1.14 trillion, it would be worth 51 times the trailing 12-month operating profit (based on AWS operating income of $22.4 billion). An exorbitant price? Sure. But not inconceivable, given that this is a large computer business that has grown its operational profits by 45% in the previous year. Quality often commands a higher price.
What bothers me about the present value is that it seems to be unduly focused on operational losses in North American and International e-commerce divisions. Sure, they’re no AWS as standalone e-commerce enterprises. Nonetheless, even with these razor-thin margins, Amazon’s e-commerce (and associated services) behemoth can produce enormous revenue given its hundreds of billions of dollars in annual sales.
What I mean is that AWS is the workhorse that drives Amazon’s financials. Still, Wall Street is fixated on e-commerce areas that have momentarily slid into the loss-generating territory. If you think the e-commerce sector’s losses will be transitory, this stock seems to be a steal. This is particularly true if AWS continues to develop and generate large profits along the way. Purchase the shares today for the cloud computing industry and get Amazon’s e-commerce ecosystem as a “free” bonus.
Featured Image – Megapixl © Jetcityimage
Author Okoro Chinedu 
