Amazon stock forecast: What to watch in the coming months

Amazon (NASDAQ:AMZN) is underperforming Standards and Practices (S&P) 500 Throughout the past five years. This is an unusual situation for AMZN stock since Jeff Bezos listed it at $18 in May 1997.

One share in the 1997 IPO is now worth 240 shares, named after the e-commerce giant. divided into 4 times (twice in 1998, 1999, and 2022). After 26 years, your $18 investment will be worth $31,435, with a compound annual growth rate of 33.3%.

Clearly, Amazon hasn’t performed well for shareholders in recent years. Part of the problem lies in the downturn that occurred just as e-commerce sales returned to historic growth.

But Amazon has many moving parts that drive much of the company’s profits. When push comes to shove, e-commerce isn’t the most important piece of Amazon’s puzzle.

Here’s what to watch in the coming months to determine whether Amazon has what it takes to return to a mostly straight upward trajectory through 2021.

Advertising continues to spread

Amazon’s advertising business did very well in 2022, growing just about from 21%. $38 billion, representing 7.3% of overall revenue. The company divides its consolidated sales into seven different revenue streams.

In 2022, revenue from advertising services exceeded the subscription services segment by $2.5 billion. This includes a very beneficial Prime membership. Two years ago, the company’s subscription services were $5.4 billion more expensive. What a wonderful event!

This is one of the few examples of a large advertising business growing. alphabet (NASDAQ:google) is the largest digital advertising business. 39% market share. In 2022, advertising sales increased by his 7%. His second largest market share is meta platform (NASDAQ:meta). Advertising revenue in 2022 decreased by 1% over 2021.

Then there’s tiny old Amazon with just 7% market share. This is only a third of the meta’s positions. Mark Zuckerberg won’t sit idly by and watch Amazon steal his business.

as Motley Fool’s Danny Vena recently pointed out that the company’s plans to introduce limited Prime Video ads will allow existing customers to opt out of ads for an additional $2.99 ​​per month.

Current US Prime members are: $139 per year, $11.58 per month if paid annually or $14.99 per month if paid monthly. The $2.99 ​​fee is 25.8% more if you pay annually and 19.9% ​​more if you pay monthly.

If you only use Amazon Prime Video without all the other perks like free shipping, the $2.99 ​​price for the ad-free service is 33.3% more expensive. Pricing is $8.99 per month.

Vena rightly points out that the company is doing this because it believes it can generate more than $7.2 billion from Prime Video ad sales. Given the growth in advertising sales in 2022, there is no doubt that it can be done.

I’m watching earnings news related to Prime Video like a hawk. It might not be a game changer, but it would still be meaningful.

AI + AWS = $$$ Profit

Another thing to keep an eye on in the coming quarters is Amazon Web Services (AWS), the company’s biggest revenue source. In 2022, it accounted for just 15.6% of Amazon’s revenue, but 186% of the company’s $12.2 billion in operating profit.

This is because its international and North American businesses suffered losses in 2022 due to increased shipping and fulfillment costs in both regions. This is also due to increased investment in fulfillment networks and technology.

In the first six months of 2023, North America generated $4.1 billion in operating revenue. The overseas division’s loss was $2.1 billion, down from an operating loss of $3.1 billion in the first half of 2022.

Unfortunately, AWS’ operating profit was only $10.5 billion. This was a 13.9% decrease compared to sales of $43.5 billion in the same period last year. Assuming that AWS generates $87 billion in revenue for him in 2023 (annualized to date), the revenue growth rate would be 8.6%, significantly lower than the 29% in 2022.

As a result, companies are looking to reduce costs as much as possible, and AWS has been inundated with requests for help in this area. However, the company believes that: deceleration does not last. We believe that any revenue lost from helping customers optimize costs will be made up for by increased workloads and new customers through generative artificial intelligence (A.I.).

But if you’re a shareholder, you can expect Amazon to significantly increase its spending on AI. At the end of September, the company announced its first plans. $1.25 billion Investment in AI startup Anthropic. They do not have a seat on the board of directors and are in the minority position. Amazon also has the option to invest an additional $2.75 billion.

OpenAI and microsoft (NASDAQ:MSFT), this could be the goose that lays the golden egg for AWS and Amazon.

On the date of publication, Will Ashworth did not have any positions (directly or indirectly) in any securities mentioned in this article. The opinions expressed in this article are those of the author; investorplace.com Publishing guidelines.