Cost savings combined with AI-driven growth could provide a bright future for this e-commerce leader.
The company's shares have risen 23% so far this year. Amazon (AMZN -0.09%) The company has only just emerged from the post-pandemic downturn, and the key to its recovery has been streamlining its e-commerce business and pivoting to exciting new growth drivers like artificial intelligence.
Let's explore how these trends will play out over the next three years.
A leaner, stronger Amazon
meanwhile Dismissal While cost-cutting may unsettle middle managers and replaceable employees, it could be good news for investors who want a more streamlined, profitable company.For Amazon, these controversial efforts have paid off in a big way.
The company's first-quarter sales rose a modest 13% from a year ago to $143.3 billion, but its operating profit soared more than 200%, to $15.3 billion. Much of that improvement came from greater efficiencies in its e-commerce operations in North America and internationally, which had seen margins shrink due to overexpansion during the pandemic under Amazon's former CEO, Jeff Bezos.
New CEO Andy Jassy is working to radically cut costs, and he's not just focused on short-term profits.
And Jassy is trying to refocus the company on what has made it so successful historically in the first place: customer experience. In the first quarter, Amazon achieved its fastest delivery speeds ever, with nearly 60% of Prime orders arriving within two days in the country's 60 largest metropolitan areas.
And in major international cities like London, Tokyo and Toronto, three in four parcels arrived within two days.
Investors are worried that the giant e-commerce business big This will be the driving force behind growth over the next three years. of The company can leverage its scale and operational efficiencies to maintain its leading position, keeping customers satisfied while delivering solid returns to investors.
Medium-term growth drivers
The company's prospects over the next three years will depend on how well it monetizes it. Generative Artificial Intelligence The company has developed a pick-and-shovel business model that provides Amazon Web Services (AWS) customers with computing power and the underlying models for building consumer applications.
Image source: Getty Images.
AWS' first-quarter revenue reached $25 billion, up 17% year over year, and the cloud computing division continues to make up a big chunk of Amazon's operating profit, accounting for $9.4 billion (63%) of the $15.3 billion it generated in the period.
New AI-related services such as Amazon Bedrock enable AWS clients to build consumer-facing AI applications using provided base models, helping to drive continued growth.
The company is also integrating AI into other aspects of its business, including customer service, image generation for advertising and its Alexa virtual assistant, and plans to re-launch it later this year with more AI capabilities for a monthly subscription fee. None of these efforts make big Impact While it may not work in isolation, it can create a flywheel effect where lots of small wins add up to big momentum.
Should you buy Amazon stock?
the Forecasted price-earnings ratio Amazon stock, with a price-to-earnings ratio of 40, Nasdaq 100 The average is 31. big A premium paid for mature companies that are no longer expanding rapidly.
That said, Amazon's ongoing cost-cutting could lead to improved profitability even as e-commerce sales growth slows. The company's cloud-computing division, AWS, is Also There remains a great opportunity for profitable expansion, and we think the stock could outperform the market over the next three years.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, serves on The Motley Fool's board of directors. Will Ebefan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.
