To The Moon

$Amazon.com(AMZN)$ is the large tech company that I may consider investing in during this market pullback. Amazon has a strong position in the e-commerce and public cloud sectors, and it is a leader with tremendous growth potential in the future. The company has built a global logistics network to support its growth and has diversified its business into multiple areas, including financial services, providing good opportunities for future growth.

Key Points

• From a valuation perspective, the potential for increasing profit margins and strong fundamentals further support its stock price.

• Key growth areas: potential growth in e-commerce and financial services.

• Cloud business: due to AWS's dominant position in the public cloud sector and Q3 showing signs of recovery in AWS growth.

• Market competition: facing competition from Tik Tok and Temu at the low end, its logistics network and deepening financial services are strong supports.

• In addition, the company continues to innovate in products and services, integrating solutions such as drone technology, warehouse management robots, and other low-cost alternatives to manual labor.

• The stock is currently valued below its 5-year average PE, which may attract long-term investors to build positions.

  

Q4 Performance Outlook

The Q3 performance exceeded expectations, and despite low market expectations for the "Black Friday" shopping season, the outlook for Q4 remains positive.

At the same time, with the current decline in CPI and the possibility of the Federal Reserve gradually exiting the tightening cycle, offline consumption is expected to further increase.

Although AWS's growth rate is trending downward, signs of increased transaction volume, optimization efforts, and discussions about the scale of AI usage indicate a potential return to growth by 2024.

The management has indicated that customer spending on cost reductions for cloud services has stabilized, implying that the decline in AWS growth may have bottomed out in Q3. The growth rate of AWS decreased to 12% in constant currency in the third quarter, lower than 28% in the same quarter of the previous year and 39% in the same period two years ago. This trend is similar to the strong trend of Microsoft's (MSFT) cloud business in the AI industry.

Overall, there is strong potential industry expectation for 2024.

Expanding logistics network to support growth

Amazon is building a global logistics network to support its explosive growth in online and physical store operations and to control transportation costs. By 2022, its transportation costs increased from $16.2 billion in 2016 to $83.5 billion. Most of this e-commerce giant's logistics projects began as internal solutions and gradually evolved into services that it can provide to both internal and external freight carriers. It is believed that Amazon has the potential to achieve a total transaction value of over $1 trillion by 2026.

This growth is expected to be driven by Amazon's entry into various product categories, even as consumer confidence declines, especially in the United States. In addition, increased revenue from third-party merchants and non-Amazon sellers' Prime membership will also be catalysts for growth.

Continuously expanding financial services

Amazon's financial services were initially aimed at enhancing user engagement within its ecosystem, but now they have surpassed its platform. For example, Amazon Pay is gaining favor with other retailers, and the company has launched new products such as "Buy Now, Pay Later." In addition to significant fintech investments in countries like India and Mexico, Amazon is actively developing new financial products, including voice-activated payments through Alexa, partnerships with companies like modern car manufacturers, and a palm recognition payment system that is being implemented starting from Whole Foods physical stores.

Amazon's financial services directly compete with traditional banks, covering checking accounts, cards, loans, small business payments, and insurance services. In 2024, the checkout service has further growth potential, intensifying the competition in e-commerce and omni-channel payments, directly competing with rivals such as PayPal (PYPL), Stripe, Adyen, and Apple (AAPL).

Comprehensive financial services are becoming the next stage of software-based business models, as companies aim to enhance customer experience, increase sales conversion rates, promote deeper engagement, and gain a larger market share.

Valuation

In terms of valuation, when compared to Chinese e-commerce companies such as Alibaba (BABA) and JD.com (JD), it may not have a profit multiple advantage. However, Chinese concept stocks face greater risks than Amazon, and in terms of market share, Amazon is more globalized. Currently, its TTM PE is around 68 times, but it is expected to decrease to around 38 times this year.

Another major advantage supporting the company's valuation growth is the increase in net assets. At the same time, after optimizing supply chain management and reducing the scale of debt at high interest rates, the company's total liabilities have also decreased.

Of course, in the long run, the revenue growth rate has slowed. However, the widespread application of AI and the innovations pioneered by AWS in various fields will further optimize this situation.