Amazon's Operating Margins Continue To Improve

Eric Sprague
5.23K Followers
(10min)

Summary

  • Amazon's 1Q25 results show improved operating margins Y/Y, with North America at 6.3% and international at 3%.
  • Valuation concerns include increased capex and slowing non-AWS growth, but potential operating margins of 8% for non-AWS segments suggest strong future earnings.
  • With a market cap below the valuation range, Amazon stock is a buy for long-term investors holding for at least three years.

Amazon

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Introduction

Per my February article, Amazon (NASDAQ:AMZN) employees are getting more productive. The 1Q25 numbers have come out since then and there are positive developments including continued progress with seasonally adjusted operating margins.

My thesis is that Amazon’s

This article was written by

Eric Sprague
5.23K Followers
I'm an individual investor heavily influenced by Warren Buffett and Charlie Munger. Munger's 1994 USC Business School Speech is something I think about a lot: ### Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result. ... Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you're going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum. In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%—or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work. ### Feel free to follow me on twitter: https://twitter.com/ftreric

Analyst’s Disclosure: I/we have a beneficial long position in the shares of AMZN, AAPL, ASML, BABA, GOOG, GOOGL, META, MSFT, NFLX, NVDA, SPOT, TCEHY, TSLA, TSM, VOO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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