In
the
first
quarter,
this
segment
accelerated.
Deals
were
larger
and
longer.
Customers
now
focus
on
moving
new
workloads
to
the
cloud
instead
of
cost
containment.
Generative
AI
is
Now
a
Multi-Billion-Dollar
Run
Rate
Business
Amazon
noted
that
it
would
ramp
capex
in
2024
to
meet
demand.
We
think
the
firm
is
one
of
several
obvious
winners
in
AI,
so
we
don’t
believe
investors
will
have
a
problem
with
this.
Execution
and
Operating
Margin
Performance
This
went
well
in
the
core
e-commerce
business
in
the
first
quarter
and
is
a
big
storyline.
Improvements
in
fulfillment
are
boosting
margins
and
improving
delivery
times.
Increased
delivery
speed
means
more
frequent
purchasing
for
Prime
members.
Management
believes
there
is
plenty
of
opportunity
left.
US
consumers
are
trading
down
and
looking
for
deals,
while
European
consumers
are
more
impacted
by
geopolitical
events.
Advertising
This
segment
performed
well
again,
up
24%
year
over
year.
Sponsored
ads
remain
the
big
driver,
but
the
recent
introduction
of
ads
to
Prime
Video
represents
a
nice
opportunity
over
the
next
several
years.
Fair
Value
Estimate
for
Amazon
With
its
3-star
rating,
we
believe
Amazon’s
stock
is
fairly
valued
compared
with
our
long-term
fair
value
estimate
of
$193
per
share,
which
implies
a
2024
enterprise
value
to
sales
multiple
of
3
times
and
a
2%
free
cash
flow
yield.
We
think
multiples
are
less
meaningful
for
Amazon,
given
the
ongoing
heavy
investment
and
rapid
scaling
that
depresses
its
financial
performance.
However,
we
expect
it
to
significantly
increase
free
cash
flow
as
it
matures.
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
pulled
forward
some
demand
by
changing
consumer
behaviour
and
better
penetrating
some
retail
categories
that
previously
had
not
gained
as
much
traction
online,
such
as
groceries,
pharmacy,
and
luxury
goods.
We
think
Prime
subscriptions
and
their
accompanying
benefits,
along
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
over
the
next
five
years.
Read
more
about
Amazon’s
fair
value
estimate
Key
Morningstar
Metrics
for
Amazon
Fair
Value
Estimate:
$193.00
Morningstar
Rating:
3
stars
Morningstar
Economic
Moat
Rating:
Wide
Morningstar
Uncertainty
Rating:
High
Economic
Moat
Rating
We
assign
Amazon
a
wide
moat
based
on
network
effects,
cost
advantages,
intangible
assets,
and
switching
costs.
The
company
has
been
disrupting
the
retail
industry
for
more
than
two
decades
while
emerging
as
the
leading
infrastructure-as-a-service
provider
via
Amazon
Web
Services.
This
disruption
has
been
embraced
by
consumers,
driving
change
across
the
industry
as
traditional
retailers
have
invested
heavily
in
technology
to
keep
pace.
Covid-19
has
accelerated
this
change,
and
given
the
company’s
technological
prowess,
massive
scale,
and
relationship
with
consumers,
we
think
Amazon
has
widened
its
lead,
which
we
believe
will
result
in
economic
returns
well
over
its
cost
of
capital
for
years
to
come.
We
believe
Amazon’s
retail
business
has
a
wide
moat.
It
has
network
effects
associated
with
its
marketplace,
whereby
its
many
buyers
and
sellers
continually
attract
more
buyers
and
sellers.
It
has
a
cost
advantage
tied
to
purchasing
power,
logistics,
vertical
integration
(proprietary
brands,
owned
delivery,
and
so
on),
and
a
negative
cash
conversion
cycle.
And
the
business
possesses
intangible
assets
associated
with
technology
and
branding.
We
also
believe
AWS
is
a
Wide-Moat
business.
It
has
high
customer
switching
costs,
a
cost
advantage
associated
with
economies
of
scale
whereby
few
competitors
can
keep
up
with
Amazon’s
investment
pace,
intangible
assets
arising
from
semiconductor
and
facility
development,
and
a
network
effect
associated
with
a
marketplace
for
software
created
to
make
AWS
work
better.
Amazon’s
burgeoning
advertising
business
has
a
narrow
moat,
in
our
view,
based
on
intangible
assets
from
its
proprietary
data
on
hundreds
of
millions
of
users,
as
well
as
a
network
effect
again
focusing
on
buyers
and
sellers
meeting
in
the
largest
available
venues.
Read
more
about
Amazon’s
Economic
Moat
Financial
Strength
We
believe
Amazon
is
financially
sound.
Revenue
is
growing
rapidly,
margins
are
expanding,
the
company
has
an
unrivaled
scale,
and
its
balance
sheet
is
in
great
shape.
In
our
view,
the
company’s
marketplace
will
remain
attractive
to
third-party
sellers,
as
Prime
continues
to
tightly
weave
in
consumers.
We
also
see
AWS
and
advertising
driving
overall
corporate
growth
and
continued
margin
expansion.
As
of
December
31,
2023,
Amazon
had
$86.8
billion
in
cash
and
marketable
securities,
offset
by
$58.3
billion
in
debt.
We
also
expect
free
cash
flow
generation,
which
suffered
during
the
pandemic
as
the
company
invested
heavily
in
facility
expansion,
content
creation,
and
its
transportation
network,
to
return
to
normal
over
the
next
few
years.
Read
more
about
Amazon’s
financial
strength
Risk
and
Uncertainty
Amazon’s
Uncertainty
Rating
is
High.
Despite
being
an
e-commerce
leader,
the
company
faces
a
variety
of
risks.
Amazon
must
protect
its
leading
online
retailing
position,
which
can
be
challenging
as
consumer
preferences
change
(especially
in
the
wake
of
covid,
as
they
may
revert
to
prior
behaviors)
and
traditional
retailers
bolster
their
online
presence.
Maintaining
an
e-commerce
edge
has
pushed
the
company
to
make
investments
in
nontraditional
areas,
such
as
producing
content
for
Prime
Video
and
building
out
its
transportation
network.
Similarly,
the
company
must
maintain
an
attractive
value
proposition
for
its
third-party
sellers.
Some
of
these
investment
areas
have
raised
investor
questions
in
the
past,
and
we
expect
management
to
continue
to
invest
according
to
its
strategy,
despite
periodic
margin
pressure
from
increased
spending.
Read
more
about
Amazon’s
risk
and
uncertainty
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
logistical networks.
Amazon
may
not
be
as
successful
in
penetrating
new
retail
categories,
such
as
luxury
goods,
due
to
consumer
preferences
and
an
improved
e-commerce
experience
from
larger retailers.
This
article
was
compiled
by
Renee
Kaplan
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