AMZN - Victim Of Its Own Success
Amazon, Inc. What's wrong with that title? It's not quite the official name of the company. The company colloquially referred to as "Amazon" by anybody and everybody from my Grandfather to teenage girls at my high school, both looking to shamelessly devolve into consumerism from the nearest smartphone or web browser, has an undeniable grip on the modern world. The correct name for AMZN, as it's listed on the NASDAQ, is Amazon.com, Inc. This title, a remnant of its dotcom era IPO, indirectly serves today to remind investors of Amazon.com, Inc's massively profitable cloud computing division, which operates completely separately from its retail division, and which pushed its common stock to almost a 1.7 Trillion dollar valuation at the end of 2021.
It's hard to say anything bad about Amazon.com, Inc's cloud computing business. Its market share is larger than Google and Microsoft's share combined in the same industry (Q3 2022 Data according to Statista). Big names like Netflix, Facebook, and Twitter use their services. Their service quality is high and has data centers around the globe. Its growing extremely fast.
The Catch: Current macroeconomic headwinds are causing many businesses to cut back spending, and AWS is seeing this effect their bottom line. AWS still grew 20% year over year in Q4, but short of the expected 27.5%. This moderate slowing in its massive growth might be normally acceptable by investors to some degree.
Except, it's not. AMZN trades at a sky-high PE of 68; After already losing more than 700 Million dollars in market cap since its peak in 2021. This ratio relies heavily on aggressive growth models for the company.
AMZN's PE ratio has always been this way. Overzealous investors have been willing to pay this premium to get ahead of the massive profits AWS consistently posted. In many tech companies, excessive growth valuations have often been justified by certain rock solid keystone statistics (think: META's daily user count). Yet, growth is in practice finite, and a peak in these statistics forces multiples return to earth. The current market conditions and complex nature of the cloud computing industry could make the peak more difficult for investors to identify, but barring explosive cloud growth in future quarters, the multiple normalization process will take place.
Disclaimer
The information and publications here are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations. Conduct your own research and consult a financial advisor before making any investment decisions.
It's hard to say anything bad about Amazon.com, Inc's cloud computing business. Its market share is larger than Google and Microsoft's share combined in the same industry (Q3 2022 Data according to Statista). Big names like Netflix, Facebook, and Twitter use their services. Their service quality is high and has data centers around the globe. Its growing extremely fast.
The Catch: Current macroeconomic headwinds are causing many businesses to cut back spending, and AWS is seeing this effect their bottom line. AWS still grew 20% year over year in Q4, but short of the expected 27.5%. This moderate slowing in its massive growth might be normally acceptable by investors to some degree.
Except, it's not. AMZN trades at a sky-high PE of 68; After already losing more than 700 Million dollars in market cap since its peak in 2021. This ratio relies heavily on aggressive growth models for the company.
AMZN's PE ratio has always been this way. Overzealous investors have been willing to pay this premium to get ahead of the massive profits AWS consistently posted. In many tech companies, excessive growth valuations have often been justified by certain rock solid keystone statistics (think: META's daily user count). Yet, growth is in practice finite, and a peak in these statistics forces multiples return to earth. The current market conditions and complex nature of the cloud computing industry could make the peak more difficult for investors to identify, but barring explosive cloud growth in future quarters, the multiple normalization process will take place.
Disclaimer
The information and publications here are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations. Conduct your own research and consult a financial advisor before making any investment decisions.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.