4. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Analysts Upside Potential: 15.29%
Amazon.com, Inc. (NASDAQ:AMZN) offers a variety of services and products through its Amazon Web Services (AWS) segment. The segment also focuses on video conferencing through its Amazon Chime platform.
Amazon Chime is a unified communications service that facilitates online meetings, video conferencing, calls, and chat. It is designed for both individuals and organizations, allowing users to connect seamlessly from various devices including desktops, mobile phones, and in-room video systems.
Some of the key features of the platform include HD video meetings with up to 100 participants in the Pro version. It also supports screen sharing, meeting chat, and dial-in options for convenience. The platform integrates smoothly with Microsoft Outlook for scheduling meetings and can be accessed through various devices.
Amazon.com, Inc. (NASDAQ:AMZN) released its third-quarter results for fiscal 2024. The company generated net sales of $158.9 billion up 11% year-over-year. Net sales were primarily driven by a strong performance in its AWS segment which includes Amazon Chime. The AWS segment’s sales improved 19% year-over-year to $27.5 billion.
Moreover, operating income for the segment was also impressive as it improved from $7 billion in Q3 2023 to $10.4 billion in Q3 2024. Looking ahead the company is expecting net sales to further improve between 7% and 11% year-over-year in Q4 2024.
Alphyn Capital Management stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc.’s (NASDAQ:AMZN) continued growth is driven by its strong performance in AWS and advertising, which grew 19% and 20%, respectively. E-commerce growth moderated to 9.3%, likely due to softer consumer demand.
In previous letters, I mentioned how Amazon’s heavy investments in logistics and fulfillment suppressed margins for some time, but the company is now reaping the rewards of those earlier expenditures. European operations have been profitable for the second consecutive quarter, while North American operating margins have risen from pandemic lows to 5.3%. A key ongoing area of focus for Amazon has been reducing the “cost to serve”; this is beginning to show tangible benefits. In 2023, Amazon undertook a “regionalization” strategy, which divided the U.S. into eight distinct regions for fulfillment and transportation, with corresponding distribution centers in each. As I learned from an expert interview done by InPractise, “regionalization” has resulted in estimated shipping expenses dropping from $4.76 per unit to $4.50, and they are now approximately $4.26, with potential reductions of 2-3% annually. Interestingly, Amazon leaned on its third-party vendors (3P) to finance much of this strategy. It did so by requiring 3P vendors ship inventory to the multiple regional distribution centers, instead of to a single location as they used to do. Moreover, Amazon imposed penalties for failing to meet strict minimum and maximum quantities. In this way, Amazon used 3P inventory to expand its distribution capacity by around 24 million square feet, much of which it could use for its own 1P inventory. Clever strategy, but one wonders if this raises the risk of an eventual vendor backlash due to the added financial and logistical pressures on 3P sellers.
Like Alphabet, Amazon is investing heavily in its AWS infrastructure to support its growing AI business. In the first half of the year, the company spent $30.5 billion on capital expenditures, with plans to exceed that in the year’s second half. When questioned about this during the earnings call, CEO Andy Jassy emphasized that they are seeing significant demand for AI-related services, which he believes will become a “very large” business for Amazon.”
