Friday, February 23, 2024
Stocks To Buy

Amazon Stock Is Back On Track and Has Room to Run

The e-commerce company is once again firing on all cylinders and its share price is marching higher

Source: Jonathan Weiss / Shutterstock.com

With its latest earnings report, Amazon (NASDAQ:AMZN) delivered the news and results that analysts and investors had been waiting to hear, and the company’s stock is responding.

Since the start of February, AMZN stock has increased 12%, bringing its year-to-date gain to 16%. In the last 12 months, the company’s share price has risen 75%. Analysts see more growth ahead. The median price target on Amazon’s stock among 60 analysts who track the company’s progress is $205 a share, implying another 18% upside from current levels. Among analysts, 97% rate AMZN stock a “buy.” There are no “sell” ratings on the stock following the strong Q4 2023 print.

Back On Track

Amazon is back on track following two difficult years coming out of the pandemic. The company overbuilt and over hired during Covid-19 lockdowns to take advantage of people’s need to shop online and demand for its e-commerce services. The end of the pandemic and return to in-person shopping coincided with rapid inflation and a rise in interest rates. Consequently, Amazon reported a string of subpar earnings and its stock got hammered, falling 55% between November 2021 and December 2022.

Management, led by CEO Andy Jassy, took the difficult but necessary steps to right-size the company and get it moving in the right direction again. More than 25,000 people were laid off, construction on several new e-commerce fulfillment centers was scrapped and multiple projects were put on hold or canceled altogether. At the same time, resources were directed into fast-growing areas such as Amazon Web Services (AWS), the Prime streaming platform, and, most recently, artificial intelligence (AI).

A Strong Print

With its Q4 2023 print, Amazon delivered quarterly financial results and guidance that surpassed Wall Street’s expectations, sending its share price up 6% in a single day. For the final three months of last year, Amazon reported earnings per share (EPS) of $1 compared to 80 cents that had been expected among analysts. Revenue in the quarter totaled $170 billion versus $166 billion that was forecast on Wall Street. Sales were up 14% from a year ago due, in part, to strong holiday shopping.

Incredibly, Amazon’s Q4 profit of $1 a share was up 3,233% from only 3 cents per share a year earlier, indicating that management’s efforts to control costs and redirect resources is paying off. The company also reported that revenue from AWS totaled $24.20 billion, matching expectations, and advertising revenue totaled $14.70 billion, ahead of the $14.20 billion expected. In terms of guidance, Amazon said its sales in the current quarter will be $143.50 billion, ahead of the $142.10 billion estimated on Wall Street.

New Growth Opportunities

Never content to sit idle, Amazon continues to grow strategically in new areas that management feels can drive future profits. Most recently it was announced that Amazon has expanded its partnership with the NFL, securing the exclusive rights to air a playoff game next season. Live sports is seen as a big driver of Prime subscriptions at the company. On their recent earnings call, Amazon’s management team said that the company will continue to take a careful approach to new investments going forward.

One areas where Amazon sees big opportunities moving forward is in generative AI. Jassy said on the earnings call that Amazon believes that AI has the potential to drive tens of billions of dollars in revenue over the next several years. The company recently announced a new AI shopping assistant called “Rufus” that it’s testing with users across America. Deploying AI to improve the e-commerce shopping experience is a key goal of Amazon going forward.

Buy AMZN Stock

Patient shareholders are now being rewarded as Amazon regains its status as a leading U.S. technology concern and one of the best mega-cap tech stocks investors can hold in their portfolio. With its operations right-sized, its sales and profit growing at a brisk pace again, and numerous catalysts to drive future growth, there is every reason to expect that Amazon’s share price will steadily rise. As Wall Street cheers the company on, now is a great time to buy AMZN stock.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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