Quarterly highlights (2025Q2)

Amazon.com, Inc. on 2025-08-01 has filed its latest earnings for the quarter ending 2025Q2.

• Strong Performance in Q2: Revenue reached USD 167.7 billion, with 12% growth year-over-year, excluding foreign exchange impacts
• Operating Efficiency Improvements: Operating income increased to USD 19.2 billion, up 31% year-over-year due to inventory and shipping enhancements
• Elevated Customer Experience: Significant strides in delivery speed and selection, contributing to the largest-ever Prime Day event
• Expanding AI Capabilities: AWS advances with custom AI chips and partnerships, offering a robust foundation for generative AI growth
• Advertising Growth: Ads revenue reached USD 15.7 billion, marking a 22% increase year-over-year, driven by extensive ad-supported platforms
• Global Expansion in International Segment: Operating margin grew 320 basis points to 4.1%, buoyed by productivity gains in established and emerging markets
• Forward-looking Guidance: Q3 sales projected at USD 174 billion – USD 179.5 billion, reflecting customer-centric delivery and inventory strategies.

The company's EPS in Q2 2025 was USD 1.7, marking an increase from USD 1.3 in Q2 2024. This growth trajectory has exhibited volatility over the past five quarters. Given that EBITDA increased significantly by 38.5% YoY, the strong EPS performance suggests high-quality earnings, provided it aligns with free cash flow metrics.

Full-year highlights (2024FY)

• Revenue growth: Revenue increased 11.0% year-over-year, reaching USD 638.0 billion, driven by expansion in key product lines
• EBITDA improvement: EBITDA rose 38.5% year-over-year to USD 123.8 billion, reflecting enhanced cost management and operational efficiency
• Capital expenditures: Capex increased 57.4% year-over-year to USD 83.0 billion, focusing on infrastructure investment and market expansion
• Acquisition activity: Acquisitions totaled USD 7.1 billion, up 21.3% year-over-year, supporting growth and strategic positioning
• Dividend and buybacks: No dividends paid or stock repurchases, highlighting a focus on reinvestment and strategic growth opportunities.

Company overview

Business model, strategy & markets

Amazon.com, Inc. operates in retail sales, manufacturing electronic devices, media production, and Amazon Web Services (AWS). It serves North American and international markets, offering products through online and physical stores, supporting sellers, content creators, and providing Amazon Prime memberships.

Amazon operates a diversified business model integrating e-commerce, cloud computing, digital streaming, and artificial intelligence. Its strategic priorities include expanding product and service offerings while enhancing operational efficiency. Key geographic focuses include North America and international markets, with multiple channels like Prime memberships and AWS aimed at consumer and enterprise customer segments.

Segments & regions

Amazon's revenue split in fiscal year 2024 was led by Online Stores at 38.7%, followed by Third-Party Seller Services at 24.5%, Amazon Web Services at 16.9%, Other at 11.1%, and Advertising Services at 8.8%.

In fiscal year 2024, the company's revenue was predominantly generated from North America, comprising 68.7% of the total, followed by the International segment at 14.7%, Germany at 6.4%, the United Kingdom at 5.9%, and other regions contributing 4.3%.

Key risk factors

The company is actively managing several legal proceedings that may have implications for its financial performance and reputation. Notable cases involve regulatory and compliance issues that could impact operations. Legal strategies are in place to address these matters, focusing on ensuring compliance and minimizing potential liabilities. The outcomes of these proceedings remain uncertain, but they are monitored closely by management.

Financial performance

Revenue for the year reached USD 638 billion, increased by 11% YoY. Gross profit was USD 311.7 billion, up 15.4% YoY. EBITDA reached USD 123.8 billion, increasing by 38.5% YoY. Over the long-term, revenue, gross profit, and EBITDA have shown a consistent upward trajectory since 2016. Management attributes revenue growth to enhanced selection and faster delivery speeds in its stores business. The robust EBITDA growth highlights effective cost management and reflects strong financial health, aligning with value investing principles of sustainable growth supported by margins and cash efficiency.

Growth trends

Revenue, gross profit, and EBITDA exhibit decelerating momentum over the short term, with EBITDA notably lagging behind as its 3-year CAGR significantly trails the 7-year rate.

Profitability

Margin profile

The company's gross margin rose by 1.9 percentage points year-over-year to 48.9%, while its EBITDA margin increased by 3.9 percentage points to 19.4%. Over the long term, both margins have demonstrated a positive trajectory, with the gross margin climbing from 35.1% in 2016, and the EBITDA margin improving significantly from 9.2% in the same year. These enhancements indicate strengthening pricing power and operational efficiencies, contributing positively to earnings quality.

The company's growth plus profitability ratio stands at 30.4% in 2024, representing a 3.0 percentage point increase from 2023. This marks a recovery from the declining trend observed from 2020 to 2022, signifying a strengthening balance of growth and profitability. A high ratio, as seen here, suggests strong earnings quality and long-term sustainability.

Peer margin benchmark

Efficiency metrics

R&D expenditure as a percentage of revenue, at 13.9% for the year, reflects a healthy innovation spending level, though down 1.0 percentage point year-over-year. SG&A at 8.7% indicates lean cost discipline, showing a year-over-year decrease of 1.1 percentage points. Over the multi-year period, R&D maintained a consistent intensity, peaking in 2022, while SG&A discipline improved substantially, underscoring effective overhead management. Maintaining strong R&D investment supports long-term competitive positioning, whereas efficient SG&A enhances overall return on invested capital.

Balance sheet strength

Assets & capital

Cash increased by 7.3% year-over-year to USD 78.8 billion, indicating strong liquidity. Current and non-current assets rose by 13.3% and 22.1%, respectively, signaling robust reinvestment in capacity. These trends reflect disciplined capital allocation and long-term solvency dedication.

Liabilities & leverage

The company has demonstrated a prudent balance sheet management approach, with debt decreasing by 3.5% year-over-year to USD 130.9 billion, and equity increasing by a notable 41.7% to USD 286.0 billion, reflecting strong earnings retention. Meanwhile, accounts payable have risen by 11.0% to USD 94.4 billion, indicating potential operational expansion. Short-term debt remains non-existent, suggesting limited liquidity pressure and judicious capital management.

Financial stability

Capital structure

The company's leverage profile is conservative with a debt-to-equity ratio of 45.8%, reflecting reduced reliance on debt and greater equity-financed flexibility versus prior years. Debt-to-assets is also conservative, indicating robust solvency, while a debt-to-capital ratio near the moderate threshold suggests prudent financial management. Overall, management demonstrates a disciplined balance sheet approach, emphasizing long-term stability.

Liquidity ratios

The current ratio has remained stable over the past eight years, classifying as moderate, reflecting an acceptable liquidity position. The cash ratio has fluctuated slightly, currently moderate, indicating a reasonable liquidity cushion for immediate obligations.

Leverage

The company's current leverage ratio is classified as moderate, reflecting a balanced approach to financing. This ratio has been on a declining trend from a high of 4.7 in 2017 to 2.2 in 2024, indicating a shift towards lower financial risk. Leverage reduction evidences conservative financial management.

Debt coverage

Debt service coverage is high in 2024, showing strengthened capacity from moderate levels in prior years. Interest coverage is high, also reflecting a significant improvement from moderate levels in recent years. Strong coverage indicates reduced solvency risk amid robust operating performance.

Cash flow performance

Operating cash flow (CF) of USD 115.9 billion indicates robust cash generation from core operations. Investing CF of USD -94.3 billion reflects significant capital invested into long-term assets. Financing CF of USD -11.8 billion signifies capital returned to shareholders.

Capital allocation

Acquisitions and investments

The company increased its fiscal year acquisitions to USD 7.1 billion, showing a 21.3% rise from the prior year, which represents a strategic fit within its expansion efforts. Additionally, capital expenditures surged to USD 83.0 billion, marking a 57.4% year-over-year increase, reflecting substantial structural reinvestment in growth and operational capabilities, indicating a commitment to long-term value creation.

Debt repayment

The company is deleveraging, as indicated by a net debt issuance of USD -11.8 billion in 2024, improving USD 4.1 billion versus 2023. This reflects a multi-year trend of reducing leverage, positioning for improved capital structure and financial flexibility.

Dividends

The company has maintained a dividend payout ratio of 0% consistently from 2016 to 2024, indicating a retention policy. This approach reflects prioritization of reinvestment, suggesting the company aims for high returns on capital deployed rather than immediate shareholder returns through dividends.

Share buybacks & issuances

The weighted average share count increased by 1.6% year-over-year, suggesting potential equity dilution. As stock repurchase and issuance activities were absent, this rise implies an issuance or option exercise, necessitating evaluation of capital deployment to ensure shareholder interests align with company growth.

Capital returns

The company's ROIC of 13.3% denotes strong capital allocation, outperforming the peer median of 6.3%, suggesting durable advantages. Complementary to this, the ROA of 9.5% reflects efficient asset use, enhancing the overall return profile.

Valuation

As of 2024-12-31 (price per share: 219.39 USD)

Trading multiples

Earnings per share rose 91.9% year-over-year, while the stock price increased by 44.4% over the same period. Earnings growth outpaced the stock increase, indicating potential value alignment with improving fundamentals.

The company's price-to-earnings (P/E) ratio decreased to 38.8 in 2024 from 51.5 in 2023, reflecting a downward trend from a historically high baseline of 76.3 in 2020. This current P/E ratio surpasses the typical threshold for a high valuation, indicating that the market expects the company to deliver above-average future earnings growth. The decrease, however, still maintains a premium multiple, highlighting the ongoing market confidence in the company's earnings potential.

The company's EV to EBITDA ratio decreased to 19 in 2024, from 32.8 in 2020, indicating a moderate valuation range. This suggests a neutral market outlook with balanced cash flow expectations.

Yield metrics

The earnings yield for 2024 stands at 2.6%, compared to a 10-year Treasury yield of 4.6%. This negative spread indicates that the equity risk may not be justified. Therefore, the earnings yield is below the Treasury yield.

Intrinsic value

The stock is trading at a significant premium to its Graham Number, implying expectations for growth and quality inherent in the price. The increase in Book Value per Share suggests a strengthening capital base, reflecting improved asset productivity over the year.

Disclaimer

This presentation is for informational and educational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any security or financial product. The content herein is based on publicly available information, believed to be accurate and reliable at the time of publication, but no representation or warranty, express or implied, is made as to its accuracy, completeness, or correctness. Any opinions, projections, or forward-looking statements expressed in this material reflect our judgment as of the date of publication and are subject to change without notice. Past performance is not indicative of future results. Investing involves risks, including the potential loss of principal. The recipient is solely responsible for their own investment decisions and should seek independent financial, legal, and tax advice where appropriate. We disclaim any liability for any direct or consequential loss arising from any use of this presentation or its contents.