Amazon.com Inc. (NASDAQ:AMZN)
Amazon.com, Inc. (NASDAQ:AMZN) had a busy quarter with many acquisitions to boost consumer engagement and growth. After buying One Medical (ONEM), it bought iRobot (IRBT) to capture more consumer data.
CVS Health Corporation (CVS) is the leading contender to acquire Signify Health (SGFY) after losing the deal to buy One Medical to AMZN. The FTC examines Amazon’s acquisition of One Medical, which could delay the deal.
Investors should watch AMZN’s excursions into healthcare as Jassy looks to boost AMZN’s growth. After two years of significant growth in fulfillment capacity, the organization has improved operational efficiencies. We believe the company appreciates the importance of regaining its profitability while generating expansion in newer industries to pacify investors.
Amazon.com, Inc. (NASDAQ:AMZN) is 30% behind its all-time highs but has rebounded from May lows. Our last piece stated that AMZN likely formed its medium-term bottom in June.
We believe the recent retreat from August highs is a chance for investors to consider piling in, as AMZN is on course to enhance its growth and profitability.
As the price action is not optimal, we revise AMZN from Hold to Cautious Buy.
Amazon’s Growth Drivers
The Information reported that Amazon’s organizational changes reflect “hefty investments in developing its health services branch, which Jassy has made a primary focus.”
Investors shouldn’t be startled by Amazon’s quick moves into healthcare as it strives to boost its growth. According to The Information, buy with Prime is a classified Project Santos initiative to target Shopify’s (SHOP) competitive moat with its fulfillment capabilities.
Morgan Stanley (MS) found that 73% of respondents chose Prime for its free two-day shipping. It’s the most important reason for respondents, ahead of Prime Video (58%). Shopify “discourages” its merchants from using Buy with Prime, claiming a violation of its terms of service. It emphasized
Your storefront code violates Shopify’s TOS. This script disables Shopify’s fraud protection, potentially stealing user data and may overcharge clients. Market Pulse
AMZN has also worked hard to engage Prime members and promote new sign-ups. Amazon’s S-team will analyze Lord of the Rings as it boosts Prime membership. Given recent developments, investors should pay attention to Prime’s management’s comments on measures in its next earnings call.
AMZN is Cutting Costs to Boost Profits.
Given its fast expansion in fulfillment and logistics over the past two years, AMZNis focused on achieving further efficiencies in its core business.
Bloomberg claimed that AMZN had canceled warehouse expansion plans. The insider also discussed Amazon’s new warehouse program, “Amazon Warehousing & Distribution (AWD).”
Amazon.com Inc. (NASDAQ:AMZN) is enticing merchants to serve non-Amazon orders with AWD. The service allows merchants to let AMZN handle slower-moving goods at lower costs, capturing more of the fulfillment value chain. We believe the company is employing its storage capacity to reach more merchants to acquire market share with its unequaled fulfillment capability. We believe that exploiting its capacity successfully could revitalize its operating leverage, which has suffered with e-commerce growth normalization.
According to consensus predictions, AMZN’s revenue growth likely bottomed in FY22 before recovering through FY26. While growth is likely slower than pre-COVID, we expect upside surprises, as indicated.
Amazon’s FCF margins are expected to rise from FY22 lows as it increases operational efficiencies. Along with AWS and advertising, AMZN’s rising retail division might help sustain its margins and premium price.
AMZN’s Valuation May Change
Amazon.com, Inc. (NASDAQ:AMZN) last traded at 17.3x EBITDA and 77.5x P/E. While it still traded at a premium, the market has persistently supported AMZN near the zone it found strong support in June.
AMZN traded below its 10-year norm by two standard deviations in June. Therefore, we’re confident in AMZN’s execution. The latest retreat from August highs is a good correction that offers investors a less aggressive entry zone.
What’s the Verdict on AMZN?
Since August, Amazon.com, Inc. (NASDAQ:AMZN) has lost 14%. We are confident that the bear trap in June will underpin AMZN’s medium-term positive tilt.
We feel Amazon.com, Inc. (NASDAQ:AMZN) entry level has been sufficiently de-risked for investors to build more positions.
Featured Image- Megapixl @Josefkubes