Amazon.com Inc. (NASDAQ: AMZN) provides a range of products and services to customers. Merchandise and material acquired for resale, as well as items sold by third-party merchants, are available through its storefronts. It also creates and produces media content, as well as manufacturing and selling electronic gadgets including the Kindle, Fire tablet, Fire TV, Echo, and Ring. North America, International, and Amazon Web Services are its three segments (AWS).

Recent Developments

• The Amazon share price has gone into 20 for 1 stock split which started trading on the spilt-adjusted basis from June 06, 2022, at the price of USD 125.25
• Announcement of Renewable energy products: Amazon launched 37 new renewable energy projects throughout the world on April 20, 2022, showing substantial progress toward its goal of powering 100% of its facilities with renewable energy by 2025, five years ahead of its initial 2030 objective. The new projects boost Amazon's renewable energy portfolio's capacity by about 30%, from 12.2 GW to 15.7 GW, and bring the total number of renewable energy projects to 310 in 19 countries.
• Commitments towards society: Amazon pledged USD 10.6 million in the first week of May 2022 to build 130 affordable homes and expand social services in Nashville, bringing the total commitment to local affordable housing to nearly USD 100 million, and Amazon also pledged USD 2.2 million to help meet the basic needs of students in underserved communities in the Puget Sound region, bringing the total commitment to USD 8 million.
• Announcement of first-quarter result for 2022: Amazon on 28^th May 2022, announced its first-quarter 2022 financial results amid the pandemic and subsequent war in Ukraine, which has brought both unusual growth and challenges regarding inflationary and supply chain pressures.
• Buy with Prime is a new service for Amazon Prime subscribers in the United States that extends the ease of purchasing with Prime to online retailers other than Amazon.com. Prime members may use their Prime member perks to shop directly from participating merchants' online storefronts, including fast and free delivery, a smooth checkout experience, and free returns on qualifying goods.
• Amazon has introduced Amazon Aware, a new line of conscientious daily items spanning fashion, home, and cosmetics that are produced from recycled polyester, organic cotton, and bio-based components.
• MGM personnel joined Prime Video and Amazon Studios after Amazon completed its USD 8.5 billion acquisition of MGM. More than 4,000 film titles, 17,000 TV episodes, 180 Academy Awards, and 100 Emmy Awards have been won by the almost century-old company.

Key Takeaways from  Q1FY22 Financial Results

• In the first quarter, net sales climbed by 7% to USD 116.4 billion, up from USD 108.5 billion in the first quarter of 2021. This increase would be 9% year over year from the first quarter of 2021, excluding the USD 1.8 billion negative impacts from year-over-year fluctuations in foreign exchange rates.
• Operating income in the first quarter fell to USD 3.7 billion from USD 8.9 billion in the first quarter of 2021.
• In the first quarter, the company lost USD 3.8 billion, or USD 7.56 per diluted share, compared to USD 8.1 billion, or USD 15.79 per diluted share, in the first quarter of 2021. A pre-tax valuation loss of USD 7.6 billion from our common stock investment in Rivian Automotive, Inc. is included in non-operating expenditure in the first quarter of 2022.
• EBITDA and operating margins for the quarter were 10.9% and 3.2%, which are well above the industry median of 0.1% and (2.1%), determining better comparative operational efficiency.

Balance Sheet & Liquidity Position

• Operating cash flow fell 41% to USD 39.3 billion in the preceding 12 months, compared to USD 67.2 billion in the preceding 12 months ending March 31, 2021.
• For the preceding twelve months, free cash flow declined to an outflow of USD 18.6 billion, compared to an inflow of USD 26.4 billion for the year ended March 31, 2021.
• Cash and Cash equivalents for Amazon were USD 36.39 billion at the end of the first quarter of 2022 almost the same as USD 36.22 billion as of 31^st December 2021.
• Long-term debts for Amazon were USD 47.56 billion at the end of the first quarter of 2022 improving from USD 48.74 billion as of 31^st December 2021.

Key Risks

• Foreign exchange risk: Amazon had a negative impact of USD 1.8 billion because of FX fluctuations in the first quarter of 2022, resulting in FX risk being one of the primary risks for Amazon.
• Constantly profitable margins: Amazon has negative net margins of 3.3% for the first quarter of 2022. Therefore, being in negative margins for such a big company over a longer period is a very big risk for the company moving forward, especially in the current macroeconomic environment of rising volatility and inflation.
• High degree of competition: Amazon faces heavy competition in all the segments that it is operating currently. One of the segments in which big rivals such as Walmart, Target, Best Buy, Home Depot, and others are gaining ground is the retail business.

Second-Quarter Guidance for 2022

• In comparison to the second quarter of 2021, net sales are predicted to be between USD 116.0 billion and USD 121.0 billion, or a 3 percent to 7% increase. Foreign currency rates are expected to have a negative impact of around 200 basis points, according to this forecast.
• If Prime Day comes in the third quarter of 2022 and no other company acquisitions, restructurings, or litigation settlements occur, operating income (loss) is estimated to be between USD (1.0) billion and USD 3.0 billion, compared to USD 7.7 billion in the second quarter of 2021.

Top 10 shareholders

The top 10 shareholders together form around 33.50% of the total shareholding, while the top 4 constitute the maximum holding. Bezos and The Vanguard Group, Inc. hold the maximum stake in the company at 9.80% and 6.68%, respectively, as also highlighted in the chart below:

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology: EV/Sales Multiple - based Relative Valuation

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

Over the past six months, AMZN's share price has corrected by 38.86%. The stock is currently leaning towards the lower end of its 52-week range of USD 101.26 to USD 188.65 We have valued the stock using the EV/Sales multiple-based relative valuation method and arrived at a target price of USD 103.67. We believe that the company is trading at a premium from its peer's average considering strong fundamentals, competitive advantages in profitability margins, and a good cash position gives bullish estimates for the upcoming near future.

Considering the strong fundamentals, robust top-line results, positive outlook, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 103.67 as of June 13, 2022.

One Year Technical Chart, as of June 13, 2022. Data Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

*Entry Price as of June 13, 2022.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.