Going Into Earnings, Is Amazon Stock a Buy, a Sell, or Fairly Valued?

Amazon is set to release its fiscal fourth-quarter 2025 earnings report on Feb. 5. Here’s Morningstar’s take on what to look for in Amazon’s earnings and the outlook for its stock.

Key Morningstar Metrics for Amazon

• Fair Value Estimate: $260.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

Amazon Earnings Release Date

• Thursday, Feb. 5, after the close of trading

What to Watch for in Amazon’s Q4 Earnings

• Margin improvements based on efficiency gains have been a major theme for Amazon for the last year. We expect more to come, and it will be good to get a pulse on this. Project Kuiper expenses should weigh on margins. We’re also looking for any other guidance for artificial intelligence and capital expenditures.
• We’ll be looking for AWS margins, which can be uneven. AWS performance is also key for the stock. Last quarter, CEO Andy Jassey said he thought the 20% year-over-year growth was “sustainable for a while.” As software has faltered, shares of Amazon have been more stable since July, and they are up 40% over the last nine months, so shares are only slightly undervalued (7%).
• Detailed discussion of the grocery business, which the company entered more meaningfully during the third quarter, along with updates on expansion efforts for next-day delivery to more rural areas. Plus updates on recent Alexa+ news, where Alexa was made available on non-Amazon devices, and any discussion of the recent 14,000 reduction in corporate employees.

Fair Value Estimate for Amazon Stock

With its 3-star rating, we believe Amazon’s stock is fairly valued compared with our long-term fair value estimate of $260 per share, which implies a 2025 enterprise value to sales multiple of 4 times and a 2% free cash flow yield.

Over the long term, we expect e-commerce to continue to take share from brick-and-mortar retailers. We further expect Amazon to gain share online. We believe that over the medium term, covid pulled forward some demand by changing consumer behavior and better penetrating some retail categories, such as groceries, pharmacy, and luxury goods, that previously had not gained as much traction online. We think Prime subscriptions and the accompanying benefits, combined with selection, price, and convenience continue to drive the retail story. We also see international as being a longer-term opportunity within retail. We model total retail-related revenue growing at an 8% compound annual growth rate over the next five years.

Read more about Amazon’s fair value estimate.

Economic Moat Rating

We assign a wide moat rating to Amazon based on network effects, cost advantages, intangible assets, and switching costs. Amazon has been disrupting the traditional retail industry for more than two decades while also emerging as the leading infrastructure-as-a-service provider via Amazon Web Services. This disruption has been embraced by consumers and has driven change across the entire industry as traditional retailers have invested heavily in technology in order to keep pace. Covid-19 has accelerated change, and given the company’s technological prowess, massive scale, and relationship with consumers, we think Amazon has widened its lead, which we believe will result in economic returns well in excess of its cost of capital for years to come.

Read more about Amazon’s economic moat.

Financial Strength

We believe Amazon is financially sound. Revenue is growing rapidly, margins are expanding, the company has unrivaled scale, and the balance sheet is in great shape. In our view, the marketplace will remain attractive to third-party sellers, as Prime continues to tightly weave consumers to Amazon. We also see AWS and advertising driving overall corporate growth and continued margin expansion.

As of Dec. 31, 2024, Amazon had $101.2 billion in cash and marketable securities, offset by $52.6 billion in debt. We also expect free cash flow generation, which suffered during covid as the company invested heavily in facility expansion, content creation, and its transportation network, to be pressured in the near-term from heavy capital expenditure investments for AWS. As this current investment cycle eases, we see a return to more normal cash flow generation.

Since the company is still in a rapid growth and heavy investment phase, we do not expect it to pay dividends or repurchase shares. The company is acquisitive, but given its size, we characterize all acquisitions throughout its history as tuck-in, including the largest deal of $14 billion for Whole Foods in 2017 and the $8 billion MGM deal in 2022. We expect the focus to remain on growth, including heavy investment for AWS and delivery.

Read more about Amazon’s financial strength.

Risk and Uncertainty

We assign Amazon an Uncertainty Rating of Medium. Amazon must protect its leading online retailing position, which can be challenging as consumer preferences change, especially post-covid-19 (as consumers may revert to prior behaviors), and traditional retailers bolster their online presence. Maintaining an e-commerce edge has pushed the company to make investments in nontraditional areas, such as producing content for Prime Video and building out its own transportation network. Similarly, the company must also maintain an attractive value proposition for its third-party sellers. Some of these investment areas have raised investor questions in the past, and we expect management to continue to invest according to its strategy, despite periodic margin pressure from increased spending.

From an environmental, social, and governance perspective, data breaches and service outages are a concern for any type of cloud service provider. As a retailer, Amazon has personal information for hundreds of millions of consumers around the world, while AWS hosts proprietary mission-critical data for enterprises.

Read more about Amazon’s risk and uncertainty.

AMZN Bulls Say

• Amazon is the clear leader in e-commerce and enjoys unrivaled scale to continue to invest in growth opportunities and drive the very best customer experience.
• High-margin advertising and AWS are growing faster than the corporate average, which should continue to boost profitability over the next several years.
• Amazon Prime memberships help attract and retain customers who spend more with Amazon. This reinforces a powerful network effect while bringing in recurring and high-margin revenue.

AMZN Bears Say

• Regulatory concerns are rising for large technology firms, including Amazon. Further, the firm may face increasing regulatory and compliance issues as it expands internationally.
• New investments, notably in fulfillment, delivery, and AWS, should damp free cash flow growth. Also, Amazon’s penetration into some countries might be harder than in the US due to inferior logistic networks.
• Amazon may not be as successful in penetrating new retail categories, such as luxury goods, due to consumer preferences and an improved e-commerce experience from larger retailers.

This article was compiled by Rachel Schlueter.