Amazon AMZN is set to release its first-quarter earnings report on May 1 in the US. Here’s Morningstar’s take on what to look for in AMZN’s earnings and stock.

Key Morningstar metrics for Amazon

  • Fair Value Estimate: $240.00
  • Morningstar Rating: ★★★★
  • Economic Moat: Wide
  • Morningstar Uncertainty Rating: Medium

Earnings release date

  • Thursday, May 1, 2025, after the close of US trading

What to watch for in Amazon’s Q1 earnings

  • Tariffs are more directly impactful, particularly on first-party selling. We estimate about 60% of cost of goods sold is from imports, and a third of that is from China, and thus tariffs could be meaningful. However, Amazon is one of the biggest retailers in the world, and should be able to negotiate the best terms from suppliers, and we thus expect Amazon to actually gain share during these trade wars.
  • Third-party selling will be a matter of higher prices, which should drive lower volumes, but it’s not clear which force will be greater. Tariffs during Trump’s first term were largely a non-issue for Amazon from a financial standpoint, even if management was scrambling to execute in challenging circumstances.
  • Guidance will be more important than usual, since there are so many moving parts. Amazon only guides one quarter at a time, so there will be less to pick apart.
  • We are looking for information on artificial intelligence and related data points.
  • Reports have surfaced a couple times in the last couple months that Amazon is slowing its capex plans.
  • We are looking for any insights into additional improvements within operations. Margin improvements based on efficiency gains have been a major theme for Amazon for the last year, and we expect more.

Fair Value estimate for Amazon

With its 4-star rating, we believe Amazon’s stock is fairly undervalued compared to our long-term fair value estimate of $240 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.

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.

Amazon has amassed significant technology and process knowledge, which we believe is an intangible asset for the firm as a whole and also for AWS. These assets could also apply to the logistics aspect of the retail business. The company expanded its distribution network by roughly 50% in 2020 while managing through a global pandemic. Given the size of its footprint, this is a monumental achievement and speaks to the company’s ability to quickly plan, construct, and expand facilities based on specific needs.

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 levels.

Risk and Uncertainty

We assign Amazon a Morningstar 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.

The company must also continue to invest in new offerings. AWS, transportation, and physical stores (both Amazon branded and Whole Foods) are three notable areas of investment. These decisions require capital allocation and management focus and may play out over a period of years rather than quarters.

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 then 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.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.