Amazon (AMZN) released
its
fourth-quarter
earnings
report
on
February
1.
Here’s
Morningstar’s
take
on
Amazon’s
earnings
and
stock.
Amazon’s
results
were
better
than
we
expected.
We
raised
our
margin
assumptions
based
on
continued
strong
results
over
the
last
several
quarters
and
the
guidance
for
the
first
quarter
of
2024,
so
we
assume
there
is
a
little
more
upside
over
the
long
term.
Overall
results
are
consistent
with
our
long-term
thesis
for
AWS,
advertising,
and
e-commerce
leadership,
along
with
our
wide
moat
rating.
Shares
have
run
sharply,
so
we
see
the
stock
as
fairly
valued.
We
see
tension
between
the
good
results
and
a
mixed
macro
picture,
and
we
are
not
willing
to
assume
conditions
are
rosy
enough
for
enterprises
to
aggressively
expand
workloads
on
AWS
and
consumers
to
happily
spend
on
discretionary
items
in
the
near
term.
AMZN
Bulls
Say
Amazon
is
the
clear
leader
in
e-commerce
and
enjoys
unrivaled
scale
to
continue
to
invest
in
growth
opportunities
and
drive
the
very
best
customer
experience.
High-margin
advertising
and
AWS
are
growing
faster
than
the
corporate
average,
which
should
continue
to
boost
profitability
over
the
next
several
years.
Amazon
Prime
memberships
help
attract
and
retain
customers
who
spend
more
with
Amazon.
This
reinforces
a
powerful
network
effect
while
bringing
in
recurring
and
high-margin
revenue.
AMZN
Bears
Say
Regulatory
concerns
are
rising
for
large
technology
firms,
including
Amazon.
Further,
the
firm
may
face
increasing
regulatory
and
compliance
issues
as
it
expands
internationally.
New
investments—notably
in
fulfillment,
delivery,
and
AWS—should
dampen
free
cash
flow
growth.
Also,
Amazon’s
penetration
into
some
countries
might
be
harder
than
in
the
United
States
due
to
inferior
logistic
networks.
Amazon
may
not
be
as
successful
in
penetrating
new
retail
categories
like
luxury
goods
due
to
consumer
preferences
and
an
improved
e-commerce
experience
from
larger
retailers.
Is
Amazon
Fairly
Valued?
With
its
3-star
rating,
we
believe
Amazon’s
stock
is
fairly
valued
compared
with
our
long-term
fair
value
estimate.
Over
the
long
term,
we
expect
e-commerce
to
continue
to
take
share
from
brick-and-mortar
retailers.
We
further
expect
Amazon
to
gain
share
online.
We
believe
that
over
the
medium
term,
COVID-19
pulled
forward
some
demand
by
changing
consumer
behavior
and
better
penetrating
some
retail
categories
that
had
not
previously
gained
as
much
traction
online,
such
as
groceries,
pharmacy,
and
luxury
goods.
We
think
Prime
subscriptions
and
their
accompanying
benefits,
combined
with
selection,
price,
and
convenience,
continue
to
drive
the
retail
story.
We
also
see
international
as
a
longer-term
opportunity
within
retail.
We
model
total
retail-related
revenue
growing
at
a
9%
compound
annual
growth
rate,
or
CAGR,
over
the
next
five
years.
We
believe
the
critical
growth
drivers
over
the
medium
term
will
be
AWS
and
advertising.
Since
these
segments
earn
materially
higher
margins
than
the
rest
of
the
business,
we
also
expect
them
to
drive
margins
higher
over
time.
Over
the
next
five
years,
we
project
AWS
revenue
growing
at
a
15%
CAGR
and
advertising
revenue
growing
at
a
19%
CAGR.
In
total,
Amazon
should
grow
at
an
11%
CAGR
through
2027.
We
model
GAAP
operating
margin
expanding
from
2%
(actual)
in
2022
to
the
low
double
digits
in
2027
as
the
company
grows
into
its
expanded
footprint
and
optimizes
its
substantial
investment
in
transportation.
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