TLDR
- Amazon reports Q1 FY25 earnings on April 28 with projected 8.16% revenue growth.
- Stock is down 23% from February peak due to tariff concerns and macro uncertainty.
- AWS and advertising continue to drive profits, despite short-term AI and cloud headwinds.
- Valuation models suggest AMZN is 27% undervalued, trading 20% cheaper than Walmart.
- Long-term fundamentals remain strong with upside potential to $268.
Amazon stock has dropped 23% since February as tariff uncertainty threatens revenue growth and profitability across its key segments. Despite these headwinds, Amazon is expected to post Q1 FY25 earnings on April 28 with 8.16% revenue and 38.7% EPS growth. While a beat on estimates may please investors, attention will likely shift to management’s outlook on tariff impacts and consumer demand trends. As of April 15 at 4:00:00 PM EDT, Amazon closed at $179.59 (-1.39%).
Q4 Highlights Set the Stage
In Q4 FY24, Amazon posted $186.8B in revenue, up 10% YoY. AWS continued its strong run with 19% YoY growth, contributing 43% to total operating income. The company improved operating margins to 11.2%, driven by cost efficiencies in fulfillment, delivery, and advertising. Annualized ad revenue reached $69B, showcasing strength in its high-margin digital business.
Management emphasized its focus on operational efficiency and expansion of AI services. With AWS investing heavily in infrastructure and proprietary chips like Trainium, Amazon remains positioned for long-term AI leadership, despite near-term volatility.
What to Watch in Q1 FY25
For Q1, Amazon expects $153.25B in revenue and operating income between $14B–$18B. Analysts forecast slightly stronger top-line growth at $155.01B and EPS of $1.36. However, investor sentiment will likely hinge on guidance regarding:
- North America & International: These segments account for 85% of revenue and are highly exposed to tariffs. Management is canceling orders from China and may face rising costs passed on by third-party sellers.
- AWS: AI-related demand could soften due to macro uncertainty, slowing AWS growth in the near term.
- Capex: Initial FY25 guidance indicated a 33% capex increase to $100B. Any pullback due to tariffs could affect near-term innovation and margin expansion.
Valuation Models Indicate Upside
Amazon is trading at a forward PE of 29—20% cheaper than Walmart, despite higher margins and a faster growth profile. In a base case scenario, analysts expect AMZN to hit $9.39 EPS by FY27. Discounted to present value and applying a PE multiple of 2.5x the S&P 500 average, the stock’s fair value is $268, implying a 45% upside.
A bear case projects flat FY25 growth and $8.22 EPS by FY27, leading to a conservative $203 price target. With a 50/50 weighting between scenarios, the blended target stands at $235—27% above current levels.
Final Thoughts
Despite tariff disruptions, Amazon’s valuation appears disconnected from its long-term fundamentals. AWS, advertising, and e-commerce expansion continue to drive margin growth. Investors willing to weather near-term volatility may find today’s prices an attractive entry point.
