A case for optimism
Despite Amazon’s profit margin resembling that of a retailer rather than a tech giant, the company’s division anchored by its lucrative Amazon Web Services (AWS) contributes over half of its overall sales and shows potential for continued growth. Furthermore, after experiencing negative cash flow last year, Amazon has seen a surge in cash flow in 2023, creating opportunities for investment in growth initiatives such as generative artificial intelligence (AI). In addition, the company is actively enhancing its e-commerce business by focusing on streamlining delivery times.
Remarkably, despite a strong rally in 2023, Amazon’s stock remains relatively undervalued compared to its peak growth days during the pandemic. This allows investors to consider Amazon an attractive investment opportunity in the current market.
Jeremy Bowman, an industry expert, raises concerns about Amazon’s future prospects. Under Andy Jassy’s leadership, the company implemented an extensive cost-cutting strategy, resulting in thousands of jobs being eliminated and the discontinuation of promising ventures, such as the Scout home-delivery program and the Amazon Care healthcare clinic.
While these measures have had a positive impact on the company’s bottom line, with soaring profits reported in the third quarter, Amazon seems to have diverted its attention away from key areas. Customer satisfaction scores have declined, reflecting complaints regarding shipping delays, inadequate search results, and unsatisfactory customer service. Competitors, including Walmart and Shopify, have made significant strides in e-commerce, outpacing Amazon in recent quarters.
In the realm of cloud computing, although Amazon remains a major player, it has ceded ground to competitors like Microsoft Azure. Moreover, the company has fallen behind in the race for AI dominance, trailing behind Microsoft and Alphabet.
Add to these challenges the law of large numbers, as Amazon’s annual revenue approaches $600 billion. With a forward P/E ratio of 62 based on 2023 estimates and an ongoing Federal Trade Commission Investigation, which could impede its market power, the company faces hurdles in sustaining significant growth. While Amazon still possesses several competitive advantages and may not be an unfavorable investment at present, considering the current challenges, investors may find better opportunities elsewhere.