Hi YXI friends,

Today, we are going to analyse Amazon (AMZN). As usual, we walk through Amazon’s key business segments, its financial highlights, valuation metrics, discounted cash flow modelling, and technical analysis.

This holistic approach enables us to trade the stock with a very rounded view of its strengths and weaknesses. There is also a potential trade idea in the Technical Analysis section, which we will track from now.

Let’s get started!

Sign posts:

• Q2 Financial Performance

• Valuation analysis vs. its history, peers, and DCF model

• Technical analysis, including a trade idea.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Amazon deflates the world

Amazon is the epitome of technology deflating the world, from selling books online to Prime Deliveries and AWS. It makes everything cheaper, faster, and more accessible for the consumers.

Sometimes evilly too, by copying the best selling products and releasing its own “Amazon’s Choice” version at half the price. Everything people thought the big supermarkets would do to squeeze the small retailers, Amazon has done to the rest of the world.

Companies like AMZN are partly the reason why we saw much lower levels of inflation before COVID compared with the 1980s, while 10Y bond yield fell from 15% to 2%. For the same reason, I think the current phase of high-inflation-high-yield is much more transitory than the market has priced in.

How Amazon makes money

Today Amazon operates a wide range of revenue streams, across stores, 3rd party seller services, advertising, subscription, and AWS.

Among them, Online stores and Third-party seller services share the majority of Amazon’s revenue. AWS attracts the most investor attention (and questions by banks at Earnings Reports), as it enjoys nearly the fastest growth and highest profit margin. As we will see in a later section, the majority of Amazon’s Enterprise Value should be attributed to AWS. The current CEO of Amazon, Andy Jassy, founded and led AWS. Plus it’s just a bit cooler and more in sync with the current AI buzz.

Geographically, most of Amazon’s revenue still comes from North America.

2. Does Amazon’s Q2 report send a warning about the economy?

Subscribe to YX Premium to read the rest.