Amazon has experienced a phenomenal growth since its May 1997 IPO. Its stock price has soared a massive 111,260% from then onwards. In 2018, Amazon’s stock price has been up by 43% compared to an industry average of about 9.2%. With this history in mind, many investors may feel that Amazon’s stock has become very expensive and that they may have missed their chance to gain on this investment. However, analyzing the company’s financials, investors can quickly realize that the growth they have seen so far can only be a beginning.
Amazon had strong earnings in Q1 April 2018 declaring earnings of around $3.27 per share. This represents a 121% year over year growth. Amazon reported total revenue of $51.04 billion which represents a 43% year over year growth. Product sales represented 61.9% of overall sales which increased 33.2% year over year to $31.61 billion while service sales representing the other 38.1% increased 62.2% year over year to $19.44 billion. Amazon Web Services (AWS) which accounts for 11% of Amazon’s total revenue saw the revenue rising by 48.6% year over year to $5.44 billion (NASDAQ, 2018).
Investors should note that Amazon’s P/E ratio which stands at 101x still is higher than the industry average 23.7x. This is mainly due to Amazon sacrificing profits in the short term to fund its many different initiatives (NASDAQ, 2018). This reduces earnings significantly and raises the ratio. This strategy has facilitated Amazon to grow tremendously over the years. One example of this strategy is the AWS which was not immediately profitable during the creation of the infrastructure. Another interesting note for investors is that even though Amazon is continuously burning through its cash to fund its operations, it has been increasing its profit margins consistently over the years. This indicates that Amazon is efficient in converting sales to actual profits. With a perpetually growing product portfolio, aggressive operations investment, and increasing profit margins, Amazon is getting ready to conquer multiple industry sectors...