Amazon.com Inc

Amazon.com Inc (NASDAQ: AMZN) is an online retailer that also serves consumers through physical stores. It also manufactures and sells electronic devices, including Fire TV, Kindly, Fire tablet, among others. 

Investment Rationale – Hold at USD 3,331.48

• In Q3 FY21, Amazon expects to report net sales in the range of US$106.0 billion and US$112.0 billion, representing 10% to 16% growth on Q3 FY20.
• Jeff Bezos will take up the role of Executive Chair in Q3 FY21, while Andy Jassy will take over the position of Chief Executive at that time, reflecting solid succession planning in the business.
• From a technical standpoint, the momentum oscillator 14-day RSI (33.20) is in the oversold zone, while the stock price has gone below the lower Bollinger Band.
• Over the last five quarters, Amazon has maintained EBITDA margin and net margin of over 14.7% and 5.7%, respectively. Both the margins are quite higher than the industry median.

Risk Assessments

• Amazon confronts intense competition across geographies, which can impact the margins.
• The international operations are exposed to economic and political risk, government regulations, credit risk and unfavourable foreign exchange movements.
• The lockdown easing and economic reopening might dampen the trend of online shopping.

Financial Highlights (for the second quarter ended 30 June 2021, as on 29 July 2021)

 (Source: Company Website)

• During Q2 FY21, operating cash flow increased 16% for the trailing twelve months on US$51.2 billion for the trailing twelve months ended 30 June 2020.
• In Q2 FY21, net sales increased 27% year-on-year to US$113.1 billion and operating income surged to US$7.7 billion in Q2 FY21.
• Similarly, net income increased to US$7.8 billion in Q2 FY21 with diluted earnings per share of US$15.12.

Share Price Chart    

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative) 

Conclusion

Amazon has shown tremendous growth in top-line and bottom-line income statement items during the first half of FY21. Therefore, it is projecting significant growth in FY21's net sales. Subsequently, operating income for FY21 is likely to be between US$2.5 billion and US$6.0 billion, post assuming nearly $1.0 billion of costs related to Covid-19. In a nutshell, Amazon has bright long-term growth prospects, and it is well-positioned to manage pandemic induced volatility. Therefore, the Company is well-positioned to create substantial value for its shareholders. The stock made a 52 week High and Low of USD 3,773.08 and USD 2,871.00, respectively.

Based on the strong fundamentals, solid guidance, and valuation conducted above, we have given an “Hold” stance on Amazon.com Inc at the closing price of USD 3,331.48 (as on 2 August 2021), while we look forward to reviewing that how things would unfold for the Amazon when Andy Jassy will take over the position of Chief Executive in Q3 FY21. 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.