After yesterday’s results disappointed investors, is the Amazon (NASDAQ: AMZN) share price now better value? Initially, the stock fell around 5% after the results were released. Even as a UK investor, is it worth holding the shares directly, rather than part of a more diversified trust or fund? These are the questions I’m looking to answer.
The latest results
A lot of eyes were on Amazon’s results because it was the first quarterly update since Jeff Bezos stepped down as CEO. Before the results came out, expectations were already very high. Wall Street consensus called for sales of $115.4bn and earnings of $12.28 a share. This high expectation was because analysts expected strong growth from the cloud computing business, especially following Microsoft’s strong results earlier in the week. They also expected the other divisions – third-party seller services, advertising, e-commerce — to all do well.
In reality, what we got was a little less than the sky-high expectations. That’s why the Amazon share price fell. Revenues for example increased ‘only’ 27% from last year to $113bn. Free cash flow decreased to $12.1bn for the trailing 12 months. Earnings per share came in at $15.12 – so that was above analyst expectations.
These Q2 results followed on from the first-quarter numbers that showed free cash flow increased to $26.4bn for the trailing 12 months, compared with $24.3bn for the 12 months ended March 31 2020. Net sales increased 44% to $108.5bn in Q1.
Could the Amazon share price bounce back?
It’s well known that tech stocks, which include Amazon, had an amazing 2020. The pandemic forced consumers to buy more online. In turn, investors bought the shares enthusiastically. And I don’t think there’s any reason to think the momentum can’t continue.
Amazon has diverse income streams all of which tap growing future trends. Every time investors think it will plateau, or suffer from already being a big corporation, it finds another gear – as it has done over the past 18 months.
The biggest risk I see for Amazon is potentially cultural with Jeff Bezos having left the CEO role. His impact as founder cannot be overlooked. Yet other big tech companies have done well post-founder. Think of Apple after Steve Jobs as one of the most notable examples. The other risk is that expectations are so high, so any future slowdown in growth could see the share price hit very hard. We saw an element of that with yesterday’s results. The threat of regulation also hangs over Amazon.
But for me the lower Amazon share price looks appealing. I do think the shares could continue to do well and can bounce back. If I invested directly in US stocks I’d be tempted to add the stock to my portfolio. The other way to invest could be to hold a trust or fund that has a large holding in Amazon, as well as other companies.
Amazon has a proven track record and is operating in fantastic growth markets, so I think this bodes very well for the future it’s on my radar.
Andy Ross owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Apple, and Microsoft. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.