Seattle, Washington – Despite facing a slight underperformance compared to the broader market since late March, Amazon (NASDAQ:AMZN) continues to show resilience and strength in the fast-growing cloud infrastructure industry. With a focus on expanding its free cash flow metrics through strong growth in AWS and cost discipline, Amazon remains undervalued by around 35%, according to a recent valuation analysis.
The company’s recent quarterly earnings report released on April 30 showcased Amazon’s ability to surpass consensus revenue and EPS estimates. With a 12.5% YoY revenue growth and an expanded adjusted EPS of $0.98, Amazon’s e-commerce and Cloud businesses both demonstrated significant strength. AWS saw a 17% revenue growth, while digital advertising also showed promising growth at 24% YoY.
Operating leverage was exercised successfully, with the operating margin expanding from 3.8% to 10.7% YoY. Amazon generated $5.6 billion in free cash flow in the first quarter of 2024, contributing to its already strong financial position with a massive $85 billion cash pile. This strong balance sheet allows Amazon to invest in growth and innovation, maintaining its competitive edge in the market.
With a dominant position in the cloud infrastructure business, AWS remains a key driver of growth for Amazon. The company continues to invest aggressively in cloud and AI-related ventures, safeguarding its leadership position in the industry. Strategic partnerships with companies like SAP, along with investments in AI startups, further solidify Amazon’s position in the market.
Amazon’s e-commerce business also continues to thrive, with its U.S. market share expected to expand to over 40% in the coming years. Partnerships like the one with Grubhub add value to Amazon Prime subscribers, enhancing the overall customer experience. Additionally, the company’s digital advertising business shows strong momentum with a 24% revenue growth in Q1 2024.
Despite a 45% rally in the stock price over the last 12 months, Amazon’s valuation remains attractive, with significant upside potential. A discounted cash flow approach suggests a fair capitalization of almost $2.6 trillion, indicating a 35% higher value than the current market cap. While risks like competition in the cloud business and regulatory obstacles exist, Amazon’s strategic positioning and historical success instill confidence in its long-term growth prospects.
Overall, Amazon continues to demonstrate strength across all its business lines, making it a compelling investment opportunity. With a strong focus on innovation, strategic investments, and maintaining its market leadership, Amazon remains a “Strong Buy” for investors looking to capitalize on its growth potential.
