The recent sell-off has left few stocks unscathed, including "Magnificent Seven" stocks such as Amazon (AMZN +2.46%). As of the early part of April, the stock is down 20% since the beginning of the year and sells at nearly 30% below the all-time high it achieved in early February.
These early results could have implications for the stock's performance in 2025. Hence, determining whether Amazon can still be a winner for the current year requires investors take a closer look at its business and financials.
NASDAQ: AMZN
Key Data Points
Amazon today
It may surprise some investors to learn that the online sales enterprise is likely not a compelling reason to buy Amazon stock. Although its retailing operation is the company's largest revenue generator, retailing is a low-margin business and likely serves as a loss leader that supports higher-margin software businesses.
Among these are third-party seller services and digital advertising. Thanks to the power of its sales site, Amazon profits by partnering with independent retailers. They post on Amazon's site, and in return, Amazon receives a cut of the revenue after the sale is made.
Amazon also derives revenue by posting ads on its site, a strategy that has also brought significant margins to tech giants such as Alphabet and Meta Platforms.
The company does not publish the operating margins of each business. Still, since these businesses are typically higher-margin operations, it may be the reason its North America and international segments post positive operating margins.
However, its highest-margin business, Amazon Web Services (AWS), has little to do with retailing. AWS pioneered the cloud computing business. Although several other tech giants now compete in the cloud, Amazon remains the leading cloud company.
Image source: Statista.
With the demand for generative AI, Amazon is also well positioned to deliver and profit from that technology. So successful is this business that it returned a 37% operating margin in 2024, up from 26% in 2023.
Amazon's financials
Can Amazon's cloud and software businesses can boost the company in 2025? In 2024, the company's $387 billion in net sales grew by 10%. That led to $69 billion in operating income, which was up 86% yearly and was mostly driven by the $40 billion AWS contributed to operating income.
When accounting for non-operating income and expenses, Amazon earned a net income of $59 billion, 95% more than in 2023.
Although Amazon does not publish annual guidance, analysts forecast that revenue will grow by 10% annually in 2025. That should bode well for a continued expansion in its operating income.
Unfortunately for Amazon shareholders, the same analysts foresee a dramatic slowdown in profit growth, which is on track to grow by only 15% in 2025. Investors tend to look unfavorably on slowing net income increases, so this could have a negative effect on shares this year.
The one area that has become increasingly favorable is valuation, with Amazon selling today at a P/E ratio of 32. You can attribute the falling valuation to the company maturing (its market cap is almost $1.9 trillion). Still, this company often sold for more than 50 times earnings, and even if earnings growth slows to the 15% range, investors could see the current earnings multiple as a reason to buy despite slowing revenue increases.
Amazon in 2025
Despite the market turmoil, Amazon stock holds tremendous potential to perform well in 2025, although the falling valuation and slowing earnings growth may not reflect well on the company's stock.
Amazon's third-party seller and ad businesses continue to post double-digit revenue growth, and AWS' operating income is rapidly surging higher. These successes may prompt investors to ask whether the valuation is too low, an unusual situation for Amazon and one that could draw additional interest.
Amazon has become a model for adaptability as the online retailer has prospered as a tech giant. Considering its more successful businesses and discounted P/E ratio, now is an excellent time to add shares.
