Downtown Josh Brown, the CEO of Ritholtz Wealth Management, appeared on CNBC’s Halftime Show on June 4. Brown admitted that he doubled his stake in Amazon (NASDAQ:AMZN) stock.
“Amazon is right now selling at 18 times enterprise value to EBITDA,” Brown said while appearing on the show. “The three-year median is more like 22, the five-year median is 25, and the 10-year median is 30. This is the cheapest you have been able to buy Amazon stock in quite some time.”
According to Brown, not only is its stock cheap, but it will lead the AI revolution. He certainly makes an interesting argument for this, including reminding investors that the employee head count reduction to remedy overtiring during the pandemic has righted its operating expenses relative to its revenues and growth.
He’s doubled down. You should, too. Here’s why.
It’s All Relative When It Comes to Amazon Stock
If you bought AMZN stock five years ago, you barely doubled your money. If you bought AMZN stock at the end of 2022, you would have also doubled your money, only 43 months faster. That speaks to the turnaround Brown alluded to in his CNBC commentary.
I’ve written about Amazon five times in 2024. In all four previous articles, I was very bullish about its business. I don’t intend to change my stripes. Josh Brown’s comments only cement my belief that its best days are still ahead.
As I see it, it’s got additional revenue streams that have barely scratched the surface.
In my May article, I pointed out that CEO Andy Jassy boldly moved to replace the head of AWS, its highly profitable cloud business. The new CEO, Matt Garman, has been with AWS for a long time. Jassy trusts Garman will accelerate the company’s push into AI.
That’s just one area where Amazon can skyrocket. As Brown suggested, it’s got plenty of levers to pull.
The Third-Largest Advertising Platform in the World
I’m glad Brown mentioned Amazon has the third-largest advertising platform in the world, a distinction it secured in just the past couple of years.
In October 2023, I suggested that its advertising business could become more important than Amazon Prime. Today, the membership is over 230 million worldwide, with about three-quarters of them in the U.S. A decade ago, it had about one-tenth of what it does today.
Lo-and-behold, in May, I wrote that Amazon Prime now contributes to the ad business after the company started introducing targeted ads into Prime Video. If you don’t want to watch the ads, you can pay $2.99 monthly to avoid them. Between these monthly fees and the ads, Prime Video is expected to generate $3 billion annually in new revenue.
Considering all the benefits the company gains from its Prime membership, including the fact that members spend more than double what nonmember spends on Amazon products and services.
On its own, the Amazon ad business could be a large public company.
Amazon Is Relatively Cheap
The fantastic thing about Brown’s EV/EBITDA numbers is that it has many more revenue generators today than it had 10 years ago, yet the multiple is 40% lower than in 2014.
Another value metric: Amazon’s earnings per share growth over the next 3-5 years is projected to be 23% annually. Based on a P/E of 50, its PEG ratio is 2.2, 21% lower than its 5-year average.
Brown rightly points out that Amazon stock has been underperforming for several years.
I don’t know if that has anything to do with investors still associating it with low-margin e-commerce sales, but its operating margin of 10.7% in Q1 2024 was the highest in its history. Further, its operating cash flow in the trailing 12 months ended March 31 was $99.1 billion, 82% higher than a year earlier.
It is printing money. It’s an excellent buy at these prices.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
