Amazon's Stock Has Rarely Been This Cheap. Here's Why 1 Analyst Thinks It Could Soar by More Than 50%.
The current stock market correction has affected many companies, including Amazon (NASDAQ: AMZN). Amazon is down nearly 20% from its all-time high, and is actually near the cheapest the stock has ever been based on its price-to-earnings (P/E) ratio. The tech giant's valuation on that key metric hasn't been this low in two decades. This is a big deal, and investors should consider scooping up shares right now, as this could be a golden opportunity to cash in on a stock that's rarely discounted.Amazon's e-commerce platform is the part of the company that most consumers interact with. However, there's a lot more to Amazon, and its other units offer far more compelling reasons to invest. In Q4, Amazon's online stores unit grew sales by 7% to $75.6 billion, so it's the largest part of the business by revenue, but also the slowest-growing one. Furthermore, e-commerce has notoriously low margins, so it's safe to assume that Amazon isn't generating a ton of profit from those sales.Two other units account for the lion's share of Amazon's profits: advertising and Amazon Web Services (AWS). The company groups advertising into its commerce division categories when it reports profits, so investors can't see the exact margins this unit is putting up. However, by looking at other companies focused on digital advertising versus those focusing on retail, it's safe to assume that this is an incredibly profitable business for Amazon. In Q4, its advertising revenue rose 18% year over year to $17.3 billion. While that's 23% of the revenue of Amazon's online stores, if we assume that the online stores segment had about the same operating profit margin as Walmart (4.3%) and that the digital advertising segment had a margin comparable to that of Alphabet (32%), then we'd conclude that online stores segment would have generated about $3.25 billion in operating profits while advertising generated about $5.54 billion.Continue reading
The current stock market correction has affected many companies, including Amazon (NASDAQ: AMZN). Amazon is down nearly 20% from its all-time high, and is actually near the cheapest the stock has ever been based on its price-to-earnings (P/E) ratio. The tech giant's valuation on that key metric hasn't been this low in two decades. This is a big deal, and investors should consider scooping up shares right now, as this could be a golden opportunity to cash in on a stock that's rarely discounted.
Amazon's e-commerce platform is the part of the company that most consumers interact with. However, there's a lot more to Amazon, and its other units offer far more compelling reasons to invest. In Q4, Amazon's online stores unit grew sales by 7% to $75.6 billion, so it's the largest part of the business by revenue, but also the slowest-growing one. Furthermore, e-commerce has notoriously low margins, so it's safe to assume that Amazon isn't generating a ton of profit from those sales.
Two other units account for the lion's share of Amazon's profits: advertising and Amazon Web Services (AWS). The company groups advertising into its commerce division categories when it reports profits, so investors can't see the exact margins this unit is putting up. However, by looking at other companies focused on digital advertising versus those focusing on retail, it's safe to assume that this is an incredibly profitable business for Amazon. In Q4, its advertising revenue rose 18% year over year to $17.3 billion. While that's 23% of the revenue of Amazon's online stores, if we assume that the online stores segment had about the same operating profit margin as Walmart (4.3%) and that the digital advertising segment had a margin comparable to that of Alphabet (32%), then we'd conclude that online stores segment would have generated about $3.25 billion in operating profits while advertising generated about $5.54 billion.
