Last Update 12 May 26
Fair value Increased 109%As AWS and AI grow to be proportionally larger and larger parts of Amazon, its traditional retailing will make way for higher yielding platform based products
Amazon is a company of two sides - A high tech, high margin side, comprising its AWS, Advertising and subscription services segments; and its more traditionally known low margin, high volume stores and third-party seller segments.
These two sides form a cohesive whole. The Amazon online store motivates customers to purchase subscriptions and hosts its advertising. AWS underpins the functioning of the online store, but is also easy to integrate with for Amazon's many third-party sellers, encouraging adoption.
However, the different sides have different growth prospects. The high margin side will continue to experience high (15%+ annual) growth, while maintaining its relatively high profit margin (~30-40%), leading to strong profit expansion for Amazon as a whole.
Whereas the low margin, high volume side of Amazon will continue to grow at its fairly steady pace (5-10% annually) and continue to be limited by its low profit margin (<5%). Despite that, Amazon's unique business mix will result in overall yearly revenue gains of ~9% and net profit margins of ~15%, leading to revenues of ~$1T and earnings of ~$150B in 5 years.
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The user KiwiInvest has a position in NasdaqGS:AMZN. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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