1. Focus on Increasing Free Cash Flow
Free cash flow is a critical financial metric that reflects a company’s ability to generate cash after capital expenditures. Amazon reported a staggering $47.7 billion in free cash flow for the 12 months ending September 30, marking a remarkable year-over-year growth of 123%. Adjusted free cash flow, accounting for equipment financing leases, was $46.1 billion, a 128% increase. CEO Andy Jassy emphasized that the company is prioritizing free cash flow, indicating strong financial health that could drive share prices higher over the long term.
2. Accelerating AI Business Outpacing AWS Growth
Amazon Web Services (AWS) remains a cornerstone of the company’s growth, with third-quarter sales increasing by 19% year-over-year to $27.5 billion. Notably, the AI sector, especially generative AI, is driving significant opportunities for AWS. Jassy pointed out that achieving success in generative AI is challenging without cloud-based data. AWS has launched nearly double the generative AI and machine learning capabilities compared to other leading cloud providers, establishing it as a key player in this rapidly evolving market. Jassy noted that AWS AI business is a multi-billion-dollar revenue stream growing at triple-digit percentages, outpacing even its existing cloud services.
3. Vast E-Commerce Growth Potential Over the Next Two Decades
While AWS shines as Amazon’s star performer, the company’s core e-commerce business still represents its largest revenue source, with substantial growth potential. Jassy highlighted that Amazon currently holds just over 1% of the global retail market share, suggesting ample opportunity for expansion as the retail landscape evolves. With 80% to 85% of retail sales still occurring in brick-and-mortar stores, Jassy believes the shift to e-commerce will create significant growth avenues over the next 10 to 20 years. Amazon is actively enhancing delivery times, improving operational efficiency, and introducing more affordable products to capture this market potential, evidenced by a 9% year-over-year increase in North American store sales and a 12% increase internationally in Q3.
4. Robust Growth in Advertising Revenue
Advertising is another key growth driver for Amazon, contributing significantly to its overall revenue. In the third quarter, Amazon’s advertising revenue reached $14.3 billion, marking a 19% year-over-year increase. Jassy remarked that despite the substantial revenue generated, there is still considerable room for growth. The company is focused on improving the relevance of ads shown to online shoppers, and it recently launched its first season of Prime Video ads, indicating an ongoing commitment to expanding its advertising revenue streams.
Is Now the Time to Buy Amazon Stock?
With strong growth in free cash flow, impressive expansion in AWS and AI sectors, vast e-commerce opportunities, and significant growth in advertising revenue, Amazon presents a compelling case for investors. Few companies can claim such a robust track record or offer the same level of growth potential as Amazon does. For those considering a long-term investment in a market leader, Amazon’s recent performance and strategic direction make it a stock worth adding to your portfolio.
