Amazon Recently Emerges as the Market's Optimal Investment Choice
Amazon Recently Emerges as the Market's Optimal Investment Choice
Earnings season has been slightly worrying up until now. Shares of established companies like Microsoft (MSFT 1.28%), Meta Platforms (META 2.16%), and Apple (AAPL -0.52%) have all faced decreases following less than impressive results and/or underwhelming projections. Given that these are among the market's most influential businesses, their struggles set a bearish tone for the market overall.
However, it's hasty to jump to such a widespread conclusion. There's clearly a disparity in the performances of various companies. Some are struggling, but others are thriving.
Online retail titan Amazon (AMZN 2.32%) falls into the second category. In fact, it might have just transformed into an ideal stock pick.
Amazon is executing flawlessly, even if its rivals aren't
At first glance, this claim might appear exaggerated. However, upon closer examination, it holds water. Last quarter's revenue of $158.9 billion marked a 11% increase year over year, causing per-share profits to rise from $0.94 in Q3 of the previous year to $1.43 this time around. This is stronger sales growth than what Apple was able to achieve.
On the other hand, while Microsoft and Meta posted better top-line growth for the three-month span in question, both companies still provided less than satisfactory forecasts. Meta plans to significantly boost spending on artificial intelligence in the near future, while Microsoft's projected revenue of $68.1 billion for the quarter ending in December fell short of the consensus of $69.8 billion. Amazon, on the other hand, anticipates sales growth of around 9% for the current quarter, with operating income surging by 36% as a result.
These factors played a significant role in each company's post-earnings performance. Out of these four, however, Amazon's stock was the only one to increase following the news.
It's not just Amazon's overall figures that propelled its stock higher last week. How it generated this growth, and how it will likely continue doing so, is equally important. Most of the improvement was attributed to its cloud computing division, Amazon Web Services (AWS). Its revenue growth of 19% boosted AWS' operating income from nearly $7 billion a year ago to more than $10.4 billion in Q3 of this year, increasing its operating profit margin from 30% to 38%. With room for this percentage to expand further, AWS now accounts for 60% of the company's overall operating income.
Then there's its advertising business. This high-margin revenue grew 19% to a third-quarter record of $14.3 billion, further emphasizing the merit of this evolution in Amazon's business model. This accounts for around one-tenth of the company's total revenue.
Perhaps Amazon's most promising achievement during its third quarter was the progress made by its international e-commerce division.
This often-overlooked aspect, due to its relatively small size, has traditionally been unprofitable for Amazon. However, with sufficient scale and cost-cutting measures in place, its international arm is now consistently generating operating income. And this progress is continuing.
Although not a significant profit center at present, Amazon's international operation is a rapidly growing one, with its income growth also accelerating. It's now making a more substantial contribution to the company's bottom line than many realize, and this trend is likely to continue.
The cherry on top: whereas shares of Microsoft, Apple, and Meta have been scaling new highs for the past three years (making them vulnerable to the sell-offs they've recently experienced), this isn't the case with Amazon. Amazon's stock is now only marginally above its pandemic-spurred peak despite its earnings-driven surge last week. There's also room for it to continue climbing without becoming overvalued.
Not forever, but certainly for now and the foreseeable future
None of this suggests that Apple or Microsoft are bad investments, or that their stocks will never witness gains again. Things change, and change is inevitable. Their stocks will eventually reach an appealing price point once more. Their top and bottom lines will start growing at a pace investors expect again. Just be patient.
In a sense, time is money, and for the time being, Amazon might just be one of the market's best investments, and certainly the top prospect among the so-called "Magnificent Seven" stocks. There are no faults in last quarter's earnings report to criticize, and guidance for this year's fourth quarter is exactly as investors anticipated. There's no reason to believe this will change in the near future, while doubts are now casting shadows over Meta, Apple, Microsoft, and others.
This may appear as a straightforward comparison of Amazon to similar options. However, that's precisely the point. Sometimes it's the simple differences that end up yielding far greater returns than one might expect.
Given the underwhelming performances of tech giants like Microsoft, Meta, and Apple, some investors might be hesitant to invest in the tech sector. However, Amazon's impressive earnings report, with a 11% year-over-year revenue increase and strong growth in its cloud computing division and advertising business, could make it an attractive investment option.
Investors looking for potential growth might find Amazon's relatively stable stock price, even after its earnings-driven surge, appealing. Its strong performance in Q3, including the growth of its international e-commerce division, suggests that it could be a strong investment choice, especially compared to the recent struggles of other tech giants.