Why not make a series out of this?
A few days ago, I published an article called “These 3 Financial Metrics Tell The Apple Story”. I figured I could do the same analysis with other FAAMG names. Because I have bet on Amazon to be the first US-based company to reach $2 trillion in value, it makes sense that I would start with the e-commerce and cloud giant.
The graph below, provided once again by Stock Rover, tells the story of Amazon. Notice how some of my select key metrics, particularly ROE and FCF yield, have taken a turn for the better in 2014. What might have happened to Amazon about five years ago? And why have sales per employee been on a downward trend for so long?
Improving shareholder returns
Let’s start with the orange line. Return on equity bottomed at the end of 2014 and shot straight up from that point. The bar chart below helps to explain what happened.
Amazon’s Web Services, or AWS, did not start to make much of an impact on the company’s financial results until around that time. Unlike the e-commerce segment, the cloud business has been highly profitable, with margins increasing quickly until 2016.
ROE has stalled out recently for a couple of reason. First, Amazon continues to invest heavily in e-commerce, caring little about turning much of a (taxable) profit. Second, AWS has come under heavier competitive pressure from the likes of Microsoft and Google, which has shaved off pricing power.
Investing in people
The blue line in the first graph is the “stairway to hell” (loved using a Led Zeppelin and AC/DC reference at once). Amazon’s annual sales per employee has plummeted from as much as $1.2 million in 2011 to about $410,000 currently. In the most recent quarter, Amazon’s per-person revenues were the only among FAAMG companies to not reach $100,000.
This is not to say that the Seattle-based company has a sales growth problem. Since the start of the decade, revenues have increased by roughly ten times. However, the number of employees on payroll has risen by twice that much.
It is in Amazon’s DNA to be aggressive at expanding its footprint. The company seems laser-focused on dominating e-commerce at home and abroad. To do that, Amazon invests heavily in capacity – whether warehouses on the retail side or data centers for the cloud business – and waits to reap the benefits later.
Investors hope that, once Amazon owns the world, it can finally focus a bit more on being efficient.
Too early to talk cash
Lastly, the green line shows the meandering path of FCF yield over the past decade. Some of the same forces that pushed ROE higher since 2014 have also propelled cash flow metrics.
Still, Amazon’s yield of 1.5% is the worst within the FAAMG group. Once again, the company is more interested in plowing cash back into the business to fuel its growth initiatives, leaving little of it left for equity investors.
It will be interesting to see if all these three metrics improve substantially in the longer term, once (if?) Amazon finally matures.
Explore more data and graphs
The data used in this article (except Statista’s chart) was provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to track custom portfolios and measure their performance relative to a number of benchmarks.
To learn more, check out stockrover.com and get started for as low as $7.99 a month.
(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. Thanks for supporting The Apple Maven)