Amazon year end review 2023

Amazon year end review 2023

originally published on January 2024 as part of the 2023 year end review

#2 Amazon - Consumer Tech (since 2016)

Amazon is the dominant e-commerce operator in USA, Canada, UK, France, Germany and other western countries. Over the last few years, it has strengthened its leadership by expanding its logistics and delivery capability (warehouses and last mile delivery). 3rd party sales (3P) represents the largest segment of e-commerce sales (in gross sales). This year, the new CEO has concentrated in increasing the efficiency of the logistic network and margin have been expanded. In my opinion, this is game over for this industry and Amazon will remain and increase its e-commerce platform dominance for the foreseeable future. Amazon will grab a larger and larger pie of the retail sales in those markets over the next 10 years. Investing in e-commerce company with a strong logistics arm is the #1 industry I want to invest in and so Amazon is a core holding and will remain so.

An economic moat is a distinct advantage a company has over its competitors that allows it to protect its market share and profitability. A wide economic moat is difficult to mimic or duplicate and creates an effective barrier against competition from other firms.

Amazon (AWS) is the #1 cloud provider. I used to be a customer of AWS and so I am quite familiar with their product and the competitive landscape. AWS is the lowest cost cloud provider and will remain so in the foreseeable future. Once companies decide to move their IT infrastructure to a particular cloud provider, it is very difficult to move to another cloud provider (database data transfer cost and time, internal employee expertise, proprietary database and tools). This is a high switching cost industry. As such, once the cloud provider business becomes more mature, it will be able to maintain or even increase its margin due to the high switching cost and reduce required capex (less growth). At that time, AWS will become a major source of free cash flow.

Here is the rolling 12 month EBITDA - one can appreciate the fast growth of EBITDA which multiply by 40x in the last 11 years.

Amazon is currently trading at 21.6x EV/EBITDA which is in the low range of its historical range. As such, I feel comfortable to own such a unique business with very wide moat, bright future and expanding margins.

Amazon will be a margin expansion play over the next few years. The trend had started in 2017 where margins had steadily increased to reach an ultimate high of 8% in march 2021. However, the post COVID effect took a toll on Amazon margin as the company had over invested in its logistics infrastructure and margin went down to 2% - as well as the stock. Now margin is up to 7.8% in the latest quarter and is expected to be higher next year.

Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.