Amazon.com, Inc. (AMZN): A Bull Case Theory

We came across a bullish thesis on Amazon.com, Inc. (AMZN) on Kroker Equity Research's Substack. In this article, we summarize the bull thesis on AMZN. Amazon.com, Inc. stock traded at $187 on September 12.

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Amazon remains a dominant force in the online retail and cloud computing sectors, making the company an attractive investment case over the long term. With a strong brand presence and diverse offerings, Amazon is more than just a marketplace; it is a powerful conglomerate that includes cloud services, advertising, logistics, and more. Amazon Web Services (AWS) is the most profitable segment and holds a leading position in the cloud computing market. AWS generates margins of over 30%, allowing it to subsidize other parts of Amazon's business. However, increasing competition from Microsoft Azure and Google Cloud is gradually changing the competitive landscape. Microsoft, with its deep integration into enterprise environments, and Google's focus on AI, machine learning, and data analytics, are steadily gaining market share and creating a more balanced competitive landscape. Despite these challenges, AWS remains a major player, and Amazon's diverse revenue streams support its resilience.

One critical area where Amazon falls short is its segment reporting. The company lumps a wide range of services into broad categories, making it difficult for investors to assess the profitability and risks of its diverse business segments. For example, while the North American segment is more mature and profitable, the international segment still struggles to achieve sustainable profitability. More detailed data on Amazon's revenue by product category would provide a clearer picture of its growth drivers and segment profitability.

Amazon Prime is another key factor in the company's success. The program has evolved from a free shipping program to a full-scale subscription service with over 200 million members worldwide. The program builds customer loyalty and leads to increased spending by subscribers, which contributes to Amazon's overall growth. The growth of Amazon's subscription and advertising services is notable, both reaching an annual rate of nearly $100 billion. Meanwhile, brick-and-mortar stores, including Whole Foods Market, remain the smallest and slowest growing source of revenue.

Amazon places a high value on cash flow. Its most recent earnings report shows trailing-twelve-month cash flow from operations of over $100 billion and free cash flow of nearly $50 billion. Despite significant investments in logistics and cloud infrastructure, Amazon has reached a scale where free cash flow continues to grow. This financial strength positions Amazon well for future shareholder returns, even as the company currently prioritizes growth and strategic investments over dividends and share buybacks.

The story continues

Amazon's valuation is complex due to its diverse and rapidly growing business segments. Despite these challenges, Amazon's strong financial position and growth potential make the company an attractive option for long-term investors. With its valuation multiples near their lows over the past three years, Amazon appears to be fairly valued, and its continued growth in free cash flow and earnings per share supports a bullish outlook for the stock.

Amazon.com, Inc. is on our list of The 31 most popular stocks among hedge fundsAccording to our database, 308 hedge fund portfolios held AMZN at the end of the second quarter, up from 302 in the previous quarter. While we recognize the risk and potential of AMZN as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you are looking for an AI stock that is more promising than AMZN but trades at less than 5 times its earnings, read our report on the cheapest AI stock.

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Disclosure: None. This article was originally published on Insider Monkey.