Amazon Inc. - FX inhibiting revenue growth

31 Oct 2022
  • 3Q22 revenue was in line with expectations, while earnings were a miss. 9M22 revenue was at 69% of our FY22e forecast, while PATMI came in at 47%, excluding a pre-tax valuation gain of US$1.1bn from Rivian Automotive.
  • Amazon Web Services (AWS) continues YoY growth for 3Q22 at 27% while contributing 100% of 3Q22 operating income. 4Q22 management guidance was below our forecast, expecting continued challenges from inflation and 4.6% FX headwinds.
  • We cut our FY22e revenue by 3.5% and operating margin from 5% to 3.2% to account for a slower expected growth rate from reduced customer spending on AWS and increasing FX headwinds. We maintain a NEUTRAL rating with a lowered DCF target price of US$108.44 (prev. US$133.00), with a WACC of 6.4% and terminal growth of 5%.



The Positives

+ AWS continues strong YoY growth. AWS remained the fastest growing segment, recording revenue of US$20.5bn, up 27% with customers opting for lower-cost products as they revise technology spending to combat inflation and weakening business performance. AWS generated operating income of US$5.4bn, the sole contributor to the overall operating income of US$2.5bn for the quarter.


+ Advertising bucks industry trends. Advertising grew 25% YoY to US$9.5bn (7.5% of total 3Q22 revenue) while competitors faced advertising pullbacks. Amazon believes its advertising model is attractive to sellers as it operates at a point where consumers are ready to spend, which increases its effectiveness.


The Negatives

– 4Q22 revenue guidance below our forecast. Management guided 4Q22 revenue to be between US$140bn and US$148bn, representing 2-8% growth YoY. The strengthening US dollar is expected to continue to be a major headwind going into the quarter, although FX has more impact on revenue growth than on income due to the investments Amazon has made internationally. AWS growth slowed to the mid-20% towards the end of 3Q22 and this is expected to persist throughout 4Q22.

About the author

Maximilian Koeswoyo
Research Analyst

Maximilian mainly covers the US technology sector. In his strive to be a globalized citizen and get continuous exposure to the fundamentals of companies from various industries, he graduated from Singapore Management University holding a Bachelor’s degree in Business Management.

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