AMAZON (AMZN STOCK): BARGAIN? 2Q 2024 EARNINGS

Intro is Amazon stock a bargain we're talking about amzn stock if this is your first time tuning in my name is Daniel you're watching unrivaled investing Amazon stock is coming under pressure losing around 10% of its value in the last 24 hours nearly 8% after hours following their second quarter 2024 earnings and yet looking at the fundamentals not too bad I mean let's look at North America operating profits improved significantly from 3 billion last year to over 5 billion so you see margin Improvement you're seeing International going from A Loss to profit even though it's a small profit it's better than a loss you're seeing a huge Improvement in AWS operating income going from 5 billion to 9.3 billion so broadly this looks great I mean why is it coming under pressure one aspect is that yes they beat EPS expectations but they missed on in terms of Wall Street Revenue expectations and what Wall Street expected and broadly Revenue Drivers looking at the different business lines and you can see this is the detailed layers in terms of their revenue drivers from online stores physical stores thirdparty seller Services advertising Revenue subscription AWS and other there was only one of those business lines that actually accelerated during the quarter the rest saw a significant deceleration and whenever you're seeing a deceleration it sort of gives investors concern and you know you can see how online store sales went from 7% to 6% growth uh physical store sales 6% to 4% growth uh third party Services 16 to 13 advertising you know a a noticeable slowdown as well from 24% 20% so you're seeing this sort of deceleration in the business so that is sort of a concern that investors are mindful of maybe it has to do with a weaker economy we'll talk about that in a second that said it seems like Management's doing the right things to AWS win business for the long term and they talk about why they're winning because their AWS business did seem like it actually re accelerated they this was one of the few business lines where it's like wow this is actually quite good where AWS so this one their business segments I should say their growth went from 177% in the first quarter to nearly 19% in the second quarter and they talked about you know the reason why is that previously the their some of their customers were had had been trying to do some sort of cost optimization and now they're saying look we've gone through the cost optimization and now it's about okay modernizing their infrastructure and the the Tailwind of moving from on premise to the cloud that's resuming and so they previous initiatives of hey how do we manage our expenses and let's cut back on our Cloud bill is now focused on okay we need to focus on the investment in terms of growing this business and building stability for the future and that sort of Tailwind that's been a multi-year multi-decade Tailwind they also talked about how they're enabling you know companies of all sizes to benefit uh ultimately from from AI as well where they're talking about yeah you can you know you can run uh Cloud Claude you could run llama so you could run and it's they're they're making it readily accessible so that way you know if you don't want to run let's say open AI you can run some of these other AI models and easily embedded in your business application so that's a big aspect of you know what's what's driving AWS and I think you know looking at the business holistically management does Management seem to be focused on how do you Jeff Bezos described this really well years ago and I have uh one of books on him over there where it's you know some some people he he was asked okay what's what's going to change in the next 12 months or next five years and the way framed it he inverted it as Charlie Munger likes to say it's always inversion where he said uh you know try to figure out what's not going to change over the next five years are customers going to want higher prices no they're going to want lower prices are customers going to want slower service no they're going to want faster service so focus on the things that aren't going to change and you're going to do fine and I think that Playbook just continues you know there look at the benefits that they're rolling out for prime or GrubHub plus is now free with prime so this is making it easier for people to place take out orders getting food directly on Amazon so that should help you know Drive their business they're talking about how this is exactly what I was just talking about speeds for Prime members in terms of getting packages it's never been faster you know and I've noticed that myself where you know now I'm starting to see more and more items where uh you know it's like oh do you want it tonight or do you want it tomorrow morning and it's like wow that's fantastic that type of that type of turnaround um so you are seeing you Valuation know the Investments I'd argue starting to pay off so the question is well what are the thoughts on Amazon in terms of the valuation given these Dynamics where you know you see margins broadly improving sales not delivering what arguably investors want to see a deceleration concerns um so how do you how do you factor all that in to think about the valuation whether or not it's a bargain you know and in context I just did two prior videos my my last two videos were were companies where I said hey the stocks have sold off this was on Sofi and Lulu I don't own any but I said hey their valuations are at points where I go It looks interesting it looks quite compelling so you can check out those videos so most of the time I do give the thumbs down or sideways just to keep you know be mindful um so I'm curious you know how does Amazon Faire uh first in full disclosure this is not Financial advice also quick plug recently an unrivaled investing subscriber posted in our exclusive Discord this a direct quote I've recently paid my second annual subscription and couldn't be happier I've profited enough already to cover the next 20 years of subscriptions it's not hyperbole I actually did the math so if you're looking for compelling investment ideas come check out unrivaled investing.com I think one of the reasons why wall Street's getting a little nervous around Amazon and I think you're broadly starting to see it with the market at least the last couple of days with some significant volatility not crazy volatility just significant when you're seeing the up or down 1 to 2% in a day it's just you notice it's you know Animal Spirits are starting to get a little and I think part of it is this concern that hey maybe there's something going on with a consumer uh because you know you talk about disappointing third quarter guidance and management saying yeah we acknowledge that we came a little short on Revenue growth in North America you know yes their profit margins were better than expected but their Topline isn't growing what they'd like partly because consumers are choosing to buy cheaper products leading to lower average selling prices so this is the disciplined consumer and the direct quote is they're continuing to be cautious in their spending and trading down to lower average selling prices ASP products that's super important you know to be mindful of this is the environment consumers have sort of struggled with inflation and so they're sort of saying do I actually need this or can I you know you know instead of buying the Hines ketchup can I buy the the Amazon Prime version Amazon basic version and you know would that be just as good so I thinking about the valuation you know first of all it's incredible you know management has pounded the table for decades that their focus is on building cash flow per share and it's incredible to see the free cash flow per share it's incredible to see them go from 10 billion cash burn as of the first quarter 2023 this is on an annualized basis to $50 billion in free cash flow positive free cash flow as of the second quarter 2024 so that's that's just an incredible margin pulling the levers to get that free cash flow and so I think it's important to reflect like wow you know like I I I don't think you're you're going to expect them in the near term to go from 50 to let's say hundred billion do I think this is probably closer to where it's appropriate for their business but at $50 billion versus the $170 share price which is reflects this nearly 10% drop in the last 24 hours that's a $1.8 trillion market cap so $ 1.8 trillion market cap versus $50 billion do that's still 36 times trailing free cash flow and so I ask you is that compelling for a business that's growing sales you know 10% on a Consolidated basis personally I don't think so I you know for example one of my top positions you know it's a company growing 20 to 30% a year and trades at 16 times free cash flow so more than double the growth rate and less than half the valuation and that's 16 times free cash flow so I just it's it's tough for me to say like this is super compelling but I'm going to you know I like to have multiple perspectives so I go to AI ticker chat and by the way we just launched new chat so you it's completely upgraded and it's completely free so if you have any questions about any US Stocks uh we cover the vast majority of US Stocks it's above like a $200 million market cap $300 million market cap around there any of those us companies if you own them feel free to just chat you know ask away at AI ticker chat completely free to use that's leveraging some of the most cuttingedge AI models so that way it it pulls from the transcripts the financials whatever questions you have uh to dive into it so I I'm using the one of the premium features for paid users um which is the predict feature to say Hey you know how can Amazon perform over time you know AI is reading the documents taking a guess on you know what the revenue growth could be in the future what the margins could be what the multiples could be in the future and it's broadly saying me maybe over 100% upside over the next 5 years maybe you know 40% downside over the next 5 years so it's not that compelling but I personally would want to tweak some some of these assumptions because in some cases I think they're too high and some cases I think they're too low so for my own personal tweaked assumptions I'm giving them more credit in terms of Revenue so I'm tweaking that from a 10 to 15% annual range I'm also tweaking the margins on the low side to be a little bit higher 7 and 1 12 10% and 12 and A2 % and I'm tweaking the end multiples down quite a bit because I think 50 times just for 10% growth or even even a little bit faster growth just isn't appropriate even though they clearly are unrivaled I'm assuming around 30 35 times earnings multiple for the Consolidated business and that gets to I'd argue an even it's just not a super compelling picture so I'd argue even after this selloff for Amazon it's still not quite in bargained territory even though it's nice to see the stock you know drop and you go okay you know is this a time where I want to pull the trigger because it's clearly improving their value proposition faster delivery people love the service but I think it's a combination of you know you have recessionary impulses with a consumer just starting to show up possibly we'll see and arguably not a crazy cheap valuation If This Were trading at you know like there's there's another e-commerce play that I own that's growing much much faster than them I actually just wrote about it for my subscribers earlier today growing much much faster than them and like a few months ago I was able to buy it like 30 times free cash flow so it was a lower multiple and growing multiples faster so I think people just love Amazon because it is unrivaled but the valuation it's just kind of Rich it's it's maybe maybe rich is is is too strong of a word maybe I should just say it seems full or fair and there's a chance that you could have multiple compression because you know let's say high 30s free cash flow multiple you know why couldn't that be 30 times why couldn't that be 25 times and I I suspect it could be I could be wrong about this and i' I'd definitely welcome your feedback in the comments below thanks so much for watching unrivaled investing