E-commerce and cloud-computing behemoth Amazon (NASDAQ: AMZN) stands as a beacon in the vast sea of businesses. Boasting a diverse business model, unrivaled brand recognition, and a sturdy financial foundation, Amazon has become a magnet for growth-conscious investors.
While discussions in the past year mainly revolved around Amazon’s foray into artificial intelligence (AI), there seems to be a different tune playing in the background. A symphony that hints at what Amazon might unveil next.
Amazon’s Financial Fortitude
Amazon’s revenue streams flow from various sources – online stores, physical stores, third-party seller services, advertisements, subscriptions, cloud computing, and other services. Notably, the crown jewel of its operating income is Amazon Web Services (AWS). Although e-commerce and retail take the lead in revenue generation, the profitability from these segments can be a rollercoaster ride from one quarter to the next.
A deep dive into Amazon’s financial reports reveals a hidden truth – the sheer profitability of the underlying business. In the quarter ending March 31, Amazon reported a staggering $15.3 billion in operating income, marking a remarkable 219% year-over-year increase.
Furthermore, free cash flow has surged to $50 billion over the trailing twelve months, with operating cash flow skyrocketing by 82% to reach $99.1 billion.
Image source: Getty Images.
The Cash Puzzle: Unveiling Amazon’s Moves
Throughout 2024, Amazon has unwrapped its cash playbook. Following a $4 billion investment into AI startup Anthropic, Amazon swiftly announced an $11 billion infrastructure endeavor to erect data centers in Indiana.
These ventures, although exorbitant, barely make a dent in Amazon’s colossal $85 billion cash reserve. In a daring wager, it is predicted that Amazon might redirect its surplus profits to reward shareholders through dividends.
Not only does Amazon possess the financial prowess to bestow dividends, but industry peers like Alphabet and Meta Platforms have jumped on the dividend bandwagon. Even the “Magnificent Seven” compatriot Nvidia recently upped its dividend by 150% during the latest earnings call.
The Final Verdict
At present, Amazon and Tesla stand as the last two Magnificent Seven members withholding dividends. Given that several megacap rivals engage in AI and proffer leading cloud-computing services along with dividends, Amazon might miss the mark for big tech investors.
Speculation looms over Amazon’s dividend initiation timeline. Yet, with its mammoth cash reserves and favorable winds blowing across various growth sectors, the notion of a dividend payout should merit contemplation within Amazon’s corridors.
Thus, caution beckons investors against purchasing Amazon shares under the pretense of it transforming into a dividend stock. Instead, the allure lies in Amazon’s diversified business and immensely profitable operations, warranting a long-term investment stance.
Should You Dive into the Amazon Sea Right Now?
Prior to diving into Amazon’s stock, it’s wise to reflect on this:
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