Amazon outperformed Alibaba over the last three months.
I explore earnings, revenue and free cash flow, plus other news.
I also spend time reviewing Amazon’s WACC and ROIC.
I briefly look into what we might expect in Q4 2021.
Lastly, I discuss when I might buy more Amazon shares.
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On August 14th, 2021 I wrote an article comparing Amazon ( AMZN ) and Alibaba ( BABA ). Allow me to briefly summarize my results, from the perspective of AMZN, just to keep things simple. AMZN wins on share price appreciation.
AMZN has a higher PEG ratio than BABA.
AMZN has more erratic free cash flow than BABA.
AMZN has had a very steady P/S ratio; BABA’s has declined.
AMZN faces far less regulatory and political risk.
Here was my conclusion: I think AMZN has the edge. Adding in the “China Risk” it appears that AMZN is the smarter risk-adjusted bet in the long term. As the facts and data come in, I’ll reconsider. This was a short-to-medium term call on AMZN having an edge. Before showing you all the results, please realize that I still own both AMZN and BABA. And, I’ll have a bunch to share soon enough. First, take a look here: Data by YCharts I think you’ll agree that AMZN was a far superior investment, assuming a buy, or a hold, since the middle of August 2021. By no means was this guaranteed and it should actually act a reminder that diversification can be your friend. So, What Happened?
As you know, there’s always a flood of news about AMZN. So, here’s one thing that I do that I do sometimes: Source: Seeking Alpha and Author
I look at pivot points. Obviously, that includes earnings. However, it’s also those points in time where there’s a violent swing up or down. Often, that’s where you’ll find the most important news, at least to investors and the price of a stock. First, a peek into the Q2 and Q3 results.
AMZN Q2 Earnings in late July looked like this : Earnings: $15.12 vs$12.30 per share, according to analysts surveyed by Refinitiv
Revenue: $113.08 billion vs$115.2 billion, according to analysts surveyed by Refinitiv
And, here’s how things looked in Q3 in October : Earnings: $6.12 vs $8.92 per share expected, according to analysts surveyed by Refinitiv Revenue: $110.81 billion vs $111.6 billion expected, according to analysts surveyed by Refinitiv So, AMZN earnings were kind of sloppy. And, revenue fell short of expectations. That’s why I like to look at free cash flow: Data by YCharts As an important reminder, Bezos is a huge fan of Free Cash Flow, as I mentioned in my previous article : In other words, if we look past the headline news about earnings and revenue, and focus on Free Cash Flow, it’s obvious that AMZN has been a FCF beast. We’ll come back to this soon enough.Before that, let’s look at August 20th, where a low was hit, but there was also a pivot. Here’s some news right around that time: Amazon disrupts retail sector with plan for large stores (Aug 19th) The tech giant with the $20 billion ad opportunity (Aug 25th) Rivian reported to have filed for IPO at shocking valuation (Aug 27th) Affirm jumps 30% as Amazon to integrate BNPL into its cart (Aug 27th) There was also some noise around content distribution and streaming. But really, nothing too special. The important point is that no really big news landed about AMZN between August 20th and September 1st.However, keeping it simple, we did see AMZN fall below its 200-Day and 50-Day moving average during that time . Data by YCharts Bring this all together there are some interesting points. News about AMZN pushes the price around a little bit. It wiggles on the news, but it’s not profound. This is nothing new; large of large numbers.Looking at Free Cash Flow over longer periods of time is far more instructive than looking at revenue or earnings. Similarly, the moving averages paint a much better picture of AMZN’s situation than the day-to-day news. So, despite my desire to look for news catalysts, with AMZN we’re barking up the wrong tree. It comes down to ongoing, quarter-to-quarter performance. Putting it another way, with AMZN, operational execution is critical. And, as I’ll soon show, […]