Amazon (AMZN): Examining Valuation After Landmark $2.5 Billion FTC Settlement and Ongoing Business Transformations
If you own shares of Amazon.com (AMZN) or have been eyeing the stock for a while, there is no missing this week’s headline. Amazon just agreed to a $2.5 billion settlement with the Federal Trade Commission, following allegations over how the company handled Prime subscription sign-ups and cancellations. This penalty is not only the largest civil fine ever for an FTC rule violation, but it also requires Amazon to make sweeping changes to its subscription practices. These changes will impact millions of current and potential Prime members. The repercussions for reputation, customer trust, and future growth are on everyone’s radar.
So, how has Amazon’s stock been reacting amid all the noise? Despite the settlement shaking up headlines, Amazon’s shares have moved only modestly in recent sessions, with the stock nearly flat year to date. Momentum has cooled since last year’s 17% gain, but that follows a remarkable near tenfold return over the past three years. Meanwhile, Amazon continues rolling out new deals, such as the expanded AWS partnership with SAP in Europe and deeper financial industry integrations, that could set the table for the next wave of revenue growth.
After such a headline-grabbing regulatory event, the question remains whether Amazon’s muted share price suggests a hidden buying opportunity or if investors are already pricing in the company’s next phase of growth.
Most Popular Narrative: 1.2% Undervalued
According to MichaelP, Amazon is trading slightly below its fair value, with the narrative suggesting significant untapped upside driven by its core businesses.
“The company has continued to improve its operating expenses and capital expenses by focusing on the core business, after a heavy investment period from 2020 to 2022. This focus has driven the large increase in OCF and FCF. For the year to September 30, 2024, OCF grew 57% to $112bn, which is incredible, and FCF went from $17bn to $43bn. This TTM FCF is slightly lower than last quarter’s figure of $53bn, but TTM net margins have improved from 7.4% last quarter to 8% this quarter, which the market liked a lot.”
Ready for a deeper dive into what could make or break Amazon’s next leg of growth? There is a key number, a crucial financial lever, and a game-changing assumption in MichaelP’s valuation. Want to know which quantitative input underpins the full projected upside? Find out what could tip the scales in either direction by clicking through to see the precise assumptions and how they shape Amazon’s fair value call.
Result: Fair Value of $222.55 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.However, significant regulatory actions or a sustained global recession could quickly undermine these growth assumptions and pivot Amazon’s outlook unexpectedly.
Find out about the key risks to this Amazon.com narrative.Another View: Is Amazon Actually Overvalued?
Zooming out from cash flows, if we compare Amazon’s current share price to the broader industry’s earnings multiples, the stock appears more expensive by this measure. Could market enthusiasm for growth be stretching its value beyond fundamentals?
See what the numbers say about this price — find out in our valuation breakdown.
Stay updated when valuation signals shift by adding Amazon.com to your watchlist or portfolio. Alternatively, explore our screener to discover other companies that fit your criteria.
Build Your Own Amazon.com Narrative
If you want to dig into the numbers and shape your own perspective, the tools are at your fingertips. Building your own view takes just a few minutes. Do it your way
A great starting point for your Amazon.com research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Valuation is complex, but we're here to simplify it.
Discover if Amazon.com might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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