Hi YXI friends,

Choosing the reporting date is a dark art. Reporting just before your rivals risks not having comparisons for investors to appreciate the good results. But if the results are mediocre and you reported after your biggest rivals, investors could push your much harder.

Amazon faced this problem today, as AWS’ 17% growth is deemed not good enough by investors, despite the overall revenue accelerating. The stock tanked by 8%, the worst in 10 quarters.

Is this a buyable opportunity? Let’s dive in.

Table of Contents

• 1. Business Highlights

• 2. Profitability

• 3. Valuation

• 4. Technical analysis

• 5. Machine Learning

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. Business Highlights

Revenue Acceleration

Amazon’s revenue grew by 13% YoY in Q2, a notable acceleration from Q1’s 9%. It is also faster than a year ago.

TTM Revenue

On a trailing twelve month basis, revenue growth is at a stable 11%.

The 3 Segments

Amazon’s business is divided into 3 major segments:

1. North America, which commands 60% of the total revenue,

2. International, which contributes towards 22% of the revenue, and

3. AWS, which brings in 18% of the revenue but sees much better margins.

North America grew by 11% YoY, breaking $100 billion in sales.

International and AWS grew at similar speeds, at 16% and 17% respectively. AWS’s growth is at the same pace as Q1. However, the gen-AI related services saw triple-digit growth. Amazon’s Trainium chips are built for price-performance, aimed to lower AI operating costs for customers compared with Nvidia and AMD chips.

AWS now has an annual run rate of $123 billion, which on its own can justify a $2 trillion market cap at 17x P/S.

Unfortunately, 17% for AWS is considered slow, which explains why investors are not too happy after the report. We have recently seen Google Cloud growing at 32% and Azure at an incredible 39%.

AWS continues to face capacity constraints, meaning Amazon will keep spending in its AI infrastructure in the foreseeable future.

Amazon Product Lines

If we break down Amazon product segments, we see that 37% of the revenue is attributed to Online Stores. These are Amazon’s first-party sales online across physical and digital prodcuts.

Amazon does host physical stores such as Amazon Fresh and Whole Foods, but they are a tiny piece of the overall pie.

Third-party services contribute to 24% of the revenue, significantly behind Amazon’s direct-to-consumer segment. This is because Amazon can only extract commissions on each sale made by third-party sellers. The positive trade off is the minimal inventory risk for Amazon. There is additional revenue through fees for fulfilment and logistic services like storage and shipping.

Amazon also generates 9% revenue from Advertising services. This is where brands, third-party sellers, and content creators to promote their products on Amazon’s websites, apps, Fire TV, Prime Video, and Twitch.

Subscriptions bring in 7% of Amazon’s revenue, entailing Amazon Prime, Prime Video, Audible audiobooks, Kindle Unlimited (ebooks), and Amazon Music.

Finally, but most importantly, AWS is the cloud computing platform for enterprises and businesses. It offers computing power, data storage, databases, analytics, ML, AI, networking, content delivery, and enterprise application solutions.

In Q2, both Online Stores and Third-party Seller Services grew by 11%. There has been successful integration of premium brands like Nike, Aveda, and Marc Jacobs.

Behind the fast delivery is Amazon’s unrivalled logistic networks. In Q2, it deployed its 1-millionth robot.

Advertising Services accelerated to 23% YoY in Q2, which is impressive. Amazon expanded its partnerships with both Roku and Disney in the quarter.

Subscription rose by 12% YoY in Q2, an acceleration from Q1.

2. Profitability

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