Amazon Stock Could Be Worth More Than Market Valuations — Here's Why

Mohit Oberoi, CFA - Author
By

Aug. 10 2022, Published 9:18 a.m. ET

Amazon is among the most successful U.S. companies. It looked set to hit a $3 trillion market cap in 2021 but the tech sell-off caught up with the stock. How much is Amazon stock worth in 2022?

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When we think of Amazon, we probably think of the e-commerce platform and the streaming service. However, Amazon is much more than these two businesses and AWS (Amazon Web Services) is its most profitable business. It owns several other small businesses and has announced two billion dollar-plus acquisitions in 2022.

Amazon did a 20-for-1 stock split.

In 2022, Amazon completed its 20-for-1 stock split. It was the fourth stock split since it went public and the first one since 1999. For the last few years, investors had been calling upon Amazon to split the stock but the company didn't oblige. Amazon finally announced one earlier this year, months after Jeff Bezos quit as the company’s CEO and transitioned to the role of executive chairman.

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When we talk of “worth,” the split deserves special mention. While some might think otherwise, a stock split doesn't change a stock’s worth. While the outstanding share count rises after the split and stockholders get extra shares, the stock price also falls in a similar proportion.

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How much is Amazon stock worth?

There are several metrics to look at Amazon stock’s worth. The most used way is to look at the stock price, which is simply the market cap divided by the total outstanding shares. On Aug. 9, Amazon stock closed at $137.83 with a market cap of $1.40 trillion.

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However, along with the equity value, we also need to look at the EV (enterprise value), which accounts for debt and cash. As of Aug. 9, Amazon has an EV of $1.50 trillion. Both the stock price and EV tell us how markets are valuing Amazon stock at any point in time.

Most analysts see Amazon stock’s worth as much higher than the current stock price. Redburn analyst Alex Haissl believes that AWS, which is the market leader in cloud, could alone be worth $3 trillion, or over twice the company’s current market cap. Analysts' target price implies an upside of 28 percent in Amazon stock over the next 12 months, which would mean its market cap rising to around $1.8 trillion.

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The sum of the parts valuation of Amazon could be much higher.

Amazon is home to several growing businesses like e-commerce, streaming, cloud, and digital advertising. It also owns stakes in Rivian, the electric car startup that went public in 2021. Haissl’s optimism over AWS eventually becoming a $3 trillion company isn't unfounded.

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Cloud companies attract premium valuations. AWS generated sales of $38.18 billion in the first half of 2022 with an operating income of $12.3 billion. The company’s North America and International e-commerce operations posted an operating loss over the period. The International e-commerce operations are still in the growth phase as Amazon continues to burn cash in key emerging markets like India. However, these investments would improve its earnings in the long term.

Overall, Amazon could be worth more than what markets are valuing the company now. The stock has been under pressure amid slowing growth and tougher comps. In 2023, the company won't face unfavorable comps like it's doing in 2022 and markets might also take a more optimistic view of the company.

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