With its shares rising by 23% since the beginning of the year so far Amazon (Nasdaq: AMZN) It has finally rebounded from the post-pandemic recession. The recovery depends on streamlining the e-commerce business and focusing on exciting new growth engines such as artificial intelligence.
Let's explore how these dynamics may continue to play out over the next three years.
Amazon is smaller and nastier
while Layoffs Cutting costs can instill a sense of dread in middle managers and other replaceable employees, and can be great news for investors who want a more streamlined and profitable company. For Amazon, these controversial efforts are yielding big results.
The company's first-quarter revenue rose a modest 13% year over year to $143.3 billion, but operating income rose more than 200% to $15.3 billion. Many of those improvements came by unlocking efficiencies in North American and international e-commerce, which had previously suffered from weak margins due to pandemic-era overexpansion under former Amazon CEO Jeff Bezos.
The new CEO, Andy Jassy, is cutting costs on a massive scale. Nor does he seek only short-term profits.
Jassy is refocusing the company on what made it historically successful in the first place: customer experience. In the first quarter, Amazon had its fastest delivery speeds ever, with nearly 60% of Prime members' orders arriving within two days in the nation's 60 largest metro areas.
In major global cities including London, Tokyo and Toronto, three out of four items arrived within two days.
Investors shouldn't expect a huge e-commerce business to be a huge success big Growth engine over the next three years. but the The company can leverage its size and operational efficiency to maintain its dominant position, maintaining customer satisfaction while delivering reliable profits to investors.
Medium-term growth drivers
Over the next three years, the company's prospects will depend on how well it can generate income Generative artificial intelligence (Amnesty International). It has developed an optional, dependent business model that provides computing power and underlying models to Amazon Web Services (AWS) customers to build consumer-facing applications.
AWS's first-quarter sales jumped 17% year over year to $25 billion. The cloud computing sector continues to contribute a large share of Amazon's operating income, reaching $9.4 billion out of the $15.3 billion (63%) generated in this period.
New AI-related services such as Amazon Bedrock — which allows AWS customers to build consumer-facing AI applications using the underlying models provided — will help fuel continued growth.
The company is also integrating AI into other aspects of its business, including customer service; Generating images for advertisements; and the virtual assistant Alexa, which it plans to update with AI features and re-release this year for a monthly subscription fee. None of these efforts will succeed Make a big impact On their own, but they can create a flywheel effect, where many small victories pile up on each other to generate significant momentum.
Is Amazon stock a buy?
With l Forward price to earnings (P/E ratio) 40, Amazon stock is more expensive than Nasdaq 100 The average is 31 which is big A premium to pay for a mature company that is no longer scaling its business quickly.
However, continued cost-cutting by Amazon could lead to continued improvements in profitability, even as e-commerce sales growth slows. The company's cloud computing division, AWS, also It remains an exciting opportunity for expansion with a high profit margin. Hence, the stock looks capable of outperforming the market over the next three years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Will Epifong He has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Amazon. The Motley Fool has Disclosure policy.
Where will Amazon stock be in 3 years? Originally published by The Motley Fool