Amazon.com Inc. (NASDAQ:AMZN [$AMZN]) is one of the biggest big tech companies listed on the NASDAQ exchange, and one which I’m sure you are familiar with (for their namesake online shopping site.)

This post was originally posted here. The writer, Jun Yuan Lim is a veteran community member and blogger on InvestingNote, with a username known as @ljunyuan and has close to 2100 followers.

The company serves (and generates revenue) from the following: (i) Consumers – where they purchase the catalogue of millions of unique products across dozens of product categories through its online & physical stores; (ii) Sellers – where they sell their products in the company’s stores, as well as fulfilling orders made on the company’s website; (iii) Developers & Enterprises – where it serves developers and enterprises through AWS (Amazon Web Services); (iv) Content Creators – where authors, independent publishers, musicians, filmmakers, Twitch streamers, skill and app developers, and others to publish and sell content on its platform; (v) Advertisers – where the company provides advertising services to sellers, vendors, publishers, authors, and others, through sponsored ads, display, and video advertising. 

Last Thursday (02 Feb 2023), Amazon.com Inc. have made available its results for the fourth quarter, and for the full-year ended 31 December 2022. As a shareholder (with my average invested price at $103.03), I have reviewed its results and in this post, you’ll read about a review of its latest financial performance, debt profile, CEO Andy Jassy’s comments on the company’s latest results, outlook for Q1 FY023, and finally, whether the tech company is considered to be ‘cheap’ or ‘expensive’ at its current traded price… 

Financial Performance – FY2021 vs. FY2022:

• One thing to note is that the company’s revenue growth (in percentage terms) have slowed significantly compared to previous years – from the range of 20+% to 60+% to just a 9.4% growth in FY2022 (compared to FY2021.)
• That said, compared to the previous year, apart from its online stores (where revenue fell by 0.9%), all the other business segments (in physical stores, third-party seller services, subscription services, advertising services, AWS, and other businesses) saw improvements. 
• Another plus point to note is the company’s gross profit margin have continued to improve, and at 43.8%, it’s the highest throughout the 8-year period I’ve studied. 
• The only negative is the company falling into a net loss position, as a result of a pre-tax valuation loss of S$12.7bn included in non-operating income (expense) from the common stock investment in Rivian Automotive Inc.

Financial Performance – Q4 FY2021 vs. Q4 FY2022:

• Growth in total revenue (of 8.6%) in-line with their guidance made in Q3 (however, excluding the unfavourable foreign currency impact, total revenue would have grown by 12%), where growth in revenue in North America segment (by 13%) and AWS segment (by 20%), was offset by decline in revenue in international segment (by 8%).
• With a lower percentage increase in its cost of revenue, its gross profit margin improved by 2.9pp to 42.6%.
• However, its net profit plummeted by 98.1%, as a result of a fall in operating income (due to the inclusion of charges [of approximately $2.7bn] in estimates related to self-insurance liabilities, impairment of property and equipment and operating leases, and estimated severance costs), as well as a pre-tax valuation loss [of $2.3bn] included in non-operating income (expense) from the common stock investment in Rivian Automotive Inc. (compared to a pre-tax valuation gain of $11.8bn from the investment in Q4 FY2021.)

Debt Profile – FY2021 vs. FY2022:

• Net cash flow from operating activities remains pretty much unchanged compared to last year. The same can also be said for its net debt position. 

Comments about Amazon.com Inc.’s Latest Results by CEO Andy Jassy:

“Our relentless focus on providing the broadest selection, exceptional value, and fast delivery drove customer demand in our Stores business during the fourth quarter that exceeded our expectations — and we’re appreciative of all our customers who turned to Amazon this past holiday season. We’re also encouraged by the continued progress we’re making in reducing our cost to serve in the operations part of our Stores business. 

In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon. The vast majority of total market segment share in both Global Retail and IT still reside in physical stores and on-premises datacenters; and as this equation steadily flips, we believe our leading customer experiences in these areas along with the results of our continued hard work and invention to improve every day, will lead to significant growth in the coming years. 

When you also factor in our investments and innovation in several other broad customer experiences (e.g. streaming entertainment, customer-first healthcare, broadband satellite connectivity for more communities globally), there’s additional reason to feel optimistic about what the future holds.”

Financial Guidance for Q1 FY2023:

• Net sales are expected to be between $121.0 billion and $126.0 billion, or to grow between 4% and 8% compared with first quarter 2022. This guidance anticipates an unfavourable impact of approximately 210 basis points from foreign exchange rates.
• Operating income is expected to be between $0 and $4.0 billion, compared with $3.7 billion in first quarter 2022.
• This guidance assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded.

Is the Current Traded Price of Amazon.com Inc. Considered ‘Cheap’ or ‘Expensive’?

Closing Thoughts:

• Apart from the company falling into a net loss position for the full-year (as a result of a pre-tax valuation loss from the investment in Rivian Automotive Inc.), on the whole, I felt the tech company’s results was a fair one.
• With the slowdown in economy set to continue, and people becoming more prudent in their spending, I am of the opinion that revenue growth of the company looks set to continue to be in single-digit percentage in the coming quarters ahead. 
• As far as the company’s business fundamentals are concerned, they continue to remain intact, and as such, I will continue to remain invested in it. 

Disclaimer: At the time of writing, I am a shareholder of Amazon.com Inc.

Once again, this article is a guest post and was originally posted on ljunyuan‘s profile on InvestingNote. 

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