Short-sighted investors are selling Amazon (AMZN), which has been a massive beneficiary of the COVID shutdowns, to fund dubious reopening plays like General Electric (GE) and Nucor (NUE). As a result, Amazon has lagged the market year-to-date and is now trading at an attractive valuation.
Although Amazon's revenue and EPS have benefited tremendously from COVID, free cash flow has not. After the current spending cycle winds down, Amazon seems poised to experience an explosion of free cash flow by 2022 and 2023. After all, it is the cash that the company gets to keep for investors that makes the company powerful and investors rich.
COVID Beneficiary
Amazon has been a massive beneficiary of COVID. The company generated $386 billion of revenue in 2020, up 37.6% y/y. This is Amazon's fastest growth rate since 2011, even including the inorganic contribution to growth in 2017 and 2018 when it acquired Whole Foods. Amazingly, the last time the company grew faster was in 2011 when the company generated "only" $48 billion in revenue.
The company saw an even bigger increase in accounting profits. Operating income expanded to 5.9% in 2020, a 70 bps y/y expansion. It is important to note that excluding one-time $11.5 billion COVID-related expenses in 2020, Amazon's operating margin would have been 8.9% rather than the reported 5.9%.
Although Amazon's revenue and EPS have benefited tremendously from COVID, free cash flow has not. After the current spending cycle winds down, Amazon seems poised to experience an explosion of free cash flow by 2022 and 2023. After all, it is the cash that the company gets to keep for investors that makes the company powerful and investors rich.
COVID Beneficiary
Amazon has been a massive beneficiary of COVID. The company generated $386 billion of revenue in 2020, up 37.6% y/y. This is Amazon's fastest growth rate since 2011, even including the inorganic contribution to growth in 2017 and 2018 when it acquired Whole Foods. Amazingly, the last time the company grew faster was in 2011 when the company generated "only" $48 billion in revenue.
The company saw an even bigger increase in accounting profits. Operating income expanded to 5.9% in 2020, a 70 bps y/y expansion. It is important to note that excluding one-time $11.5 billion COVID-related expenses in 2020, Amazon's operating margin would have been 8.9% rather than the reported 5.9%.