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On Thursday, Amazon released results that beat estimates across every metric on which it is measured. That explains the solid share price reaction on Friday. There were concerns that AWS would plateau but a 12% year-over-year growth seemed to calm those nerves.
There was a lot of talk about fulfilment. Amazon continues to get faster at deliveries and customers are loving it. Amazon managed to deliver more than 50% of Prime Member orders in its 60 largest US markets by the same day or next day. The number of same-day deliveries has quadrupled since 2019.
As expected, AI was a strong theme, although Amazon is not looking to sell AI tools directly, for now. They are more interested in boosting AI access to the thousands of businesses that are AWS clients.
Amazon still loses money in its international ventures. This is to be expected as it is very expensive to launch ecommerce operations in a new country. Amazon has opened up in 10 new regions since 2018. In the past, it has taken about 9 years to be profitable in a new market. For comparison, Takealot in South Africa is still loss making.
I mention the losses because they make the overall price to earnings ratio look very expensive. A concerned client called me last week after he saw on Google Finance that Amazon had a price to earnings ratio above 300. I told him that the ratio drops quickly to 31 by 2025, based on Goldman Sachs estimates.
If Amazon pulled the plug on global expansion, they would be very profitable very quickly. But they have never worried about the short term and neither should you. This is a fabulous business that should be a core holding in every account.
