Amazon Stock price Up 7% in March – Time to Buy AMZN Stock?

Amazon stock (AMZN) has gained over 7% in March amid the rebound in US stock markets which have now closed with gains for two consecutive weeks. AMZN has narrowed its YTD losses to a mere 1.2% and is outperforming not only the FAANG peers but also the S&P 500.

Amazon underperformed the S&P 500 in 2021 and was the worst-performing FAANG stock of the year. Netflix was the second-worst FAANG of 2021 and its woes have not ended in 2022. It is the worst-performing FAANG in 2022 as well with many even questioning its inclusion in the coveted group. Coming back to AMZN stock, can it continue to outperform in 2022 and should you buy the stock now?

Amazon stock recent developments

Earlier this month, Amazon completed the merger of MGM and the business now forms part of its Amazon Studios and Prime Videos. The $8.5 billion deal which was announced in 2021 is the second-largest deal for AMZN since its acquisition of Whole Foods. While Whole Foods complemented its core e-commerce business, MGM would add value to the company’s streaming business especially as streaming war has been heating up in the US.

The deal with MGM would add over 17,000 TV shows and 4,000 movies to Prime’s library. Streaming companies have been pouring billions into new content in order to attract and retain customers. The streaming war has especially taken a toll on NFLX as its new subscriber add numbers have been underwhelming despite a higher outlay towards new content.

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AMZN’s retail business

Amazon has announced that it would close 68 of its physical stores in the US and the UK. The company would continue with its grocery stores and Whole Food Stores. Physical retail accounts for a small chunk of Amazon’s earnings and in Q4 2021 only about 3% of its sales were from physical stores. It has also announced a 20-for-1 stock split following the footsteps of Alphabet.

Amazon stock split

Amazon’s stock split was long overdue even as several other US tech companies had split their shares. The company had last split its shares in 1999. It did three stock splits between 1998 and 1999 amid the dot com boom. Over the last couple of years, several investors have been calling upon AMZN to split the stock but the company managed to fend off the pressure. Now, within a year of taking over the baton from Jeff Bezos, AMZN’s CEO Andy Jassy has announced a split. Markets gave a thumbs up to the split and the stock had soared on the announcement. While stock splits don’t change a company’s fundamentals, they help in increasing liquidity through higher trading volumes.

AMZN earnings

Amazon reported revenues of $137.4 billion in Q4 2011, which were 9% higher than the corresponding period last year. The company’s sales fell slightly short of estimates. This is the third consecutive quarter where Amazon has missed sales estimates. Prior to that, the company posted better than expected revenues for three straight years.

However, Amazon’s AWS revenues came in at $17.8 billion in the quarter, which was higher than the $17.37 billion that analysts were expecting. Amazon posted an adjusted EPS of $5.80 in the quarter which was way above the $3.57 that analysts were expecting.

Prime price hike

In the fourth quarter, it reported ad revenues of $9.7 billion which were 32% higher YoY. Commenting on the business, AMZN CFO Brian Olsavsky said, “We’re very happy with ad growth. It continues to drive value.”

As many were expecting, Amazon said that it would increase the price for its Prime subscription by $20 to $139. The cost for monthly subscription would rise by $2 to $14.99. It was the first price hike for Prime service in four years.

The stellar ad revenues, the price hike for Prime, and bullish commentary on the outlook led to a rise in AMZN stock after the earnings release.

Wall Street is quite bullish on Amazon stock

Cowen believes Amazon is among the best-placed stocks amid the current inflationary environment. It said the company is “well positioned to benefit from a permanent shift in consumer preferences towards online grocery, given its leadership in grocery delivery with two options available via Amazon.com and Whole Foods.”

Cowen analyst John Blackledge added, “AMZN has also demonstrated a growing focus on their physical grocery footprint, as they’ve expanded their Amazon Fresh presence to 25 stores across 7 states, implementing Just Walk Out contactless check-out.”

AMZN stock forecast

Of the 50 analysts covering AMZN stock, 49 rate the stock as a buy while one it as a hold. None of the analysts have a sell or equivalent rating on the stock. Its median target price of $4,100 implies an upside of over 24% over current prices.

Evercore ISI’s Mark Mahaney believes that Amazon stock is undervalued and underappreciated. He believes that the AWS and advertising business are worth $1.56 trillion. He added that this is “almost the entire Enterprise Value that AMZN currently trades at. So that means…investors are getting Amazon’s Retail segment for free. That’s compelling.”

According to Mahaney, “Key fact in plain sight – Amazon’s Ad revenue is bigger than YouTube ($31B vs. $29B in ’21) and is growing faster (56% vs. 46%).” He added, “And unlike GOOGL and FB, AMZN faces no privacy driven ad attribution headwinds, as AMZN is a closed-loop ecosystem.”

Amazon stock long-term forecast

Amazon is among the best stocks for the long term. The company is present in several industries like e-commerce, cloud, digital advertising, and streaming—all of which are secular growth stories for the coming decade. The company has a market-leading position in the US e-commerce market and is also the leader in the cloud market.

Should you buy AMZN stock?

AMZN’s valuation multiples look reasonable as the stock trades at an NTM (next-12 months) EV-to-sales multiple of 67x. The multiples have expanded over the last couple of weeks amid the rebound in AMZN stock. However, it is still not late to buy AMZN stock especially if you are a long-term investor.

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