What happened

Shares of Amazon.com (NASDAQ: AMZN) declined on Wednesday after rival retailer Target (NYSE: TGT) reported a steep decline in profits. By the close of trading, Amazon's stock price was down 1.8% after falling as much as 3.4% earlier in the day.

So what

Target was forced to issue heavy discounts to clear out excess inventory. That weighed heavily on the discount retail chain's profitability. Its gross and operating margins fell to 24.7% and 3.9%, respectively, in the third quarter, from 28% and 7.8% in the prior-year period. Target's earnings per share (EPS), in turn, plunged 49% year over year to $1.54.

The retailer's guidance was even more alarming to investors. Target now projects "a low-low-single digit decline" in same-store sales. Management also expects the company's operating margin to decline further, to 3%.

"In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates, and economic uncertainty," CEO Brian Cornell said in a press release.

Worse still, chief financial officer Michael Fiddelke said during a conference call with analysts that the downturn could persist into 2023.

"As we look beyond the holiday season, we're planning for a continued challenging environment as we move into next year," Fiddelke said. 

Now what

Target's troubles are also worrisome for Amazon's shareholders. A further decline in consumer discretionary spending could dent the e-commerce titan's sales and profits, which are already under pressure from inflation concerns and recession fears.

Amazon's actions suggest it is bracing for such a scenario. The company is slashing costs in its massive fulfillment network and scaling back on unprofitable projects as it works to bolster its sagging profitability.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Amazon stock fell today appeared first on The Motley Fool Australia.

Amazon (NASDAQ: AMZN) is no stranger to antitrust lawsuits. Just the other day, California filed a suit against Amazon alleging anticompetitive pricing policies. This filing isn't the first time these allegations have come up, and it likely won't be the last.

Because of the current environment, it's not a far-fetched idea that Amazon could be split up voluntarily or by the government. It's a worthwhile exercise to value each business segment of the company separately for two reasons. First, it could prepare investors for a split. Second, it also serves as a method to value the company and determine if it's worth an investment today.

Let's see how each segment is valued and if Amazon is worth your investment dollars.

A large business with multiple segments

Amazon's business can be split into two main segments: commerce and cloud computing. Commerce is much broader than the website you order items from. It also includes advertising, third-party seller services, and subscription products. Cloud computing, better known as Amazon Web Services (AWS), provides the infrastructure to process workloads through the cloud.

The commerce segment also generates the bulk of Amazon's revenue. Over the past 12 months, the company brought in $485.9 billion in sales overall, and 85% of that came from commerce. However, that segment hasn't made any money over the past year. It lost $7.1 billion; whereas, AWS made $22.4 billion in operating income.

Those figures group all of the many commerce segments together. Amazon doesn't break out its expenses for each segment, but it does break out its sales.

Source: Amazon. YOY = year over year.

This table provides valuable insights. First, its online-store segment didn't grow its sales but is still the largest. Second, AWS is the fastest-growing segment (the "other" segment is volatile, so growth likely isn't sustainable) and the second largest. Lastly, advertising services still grew 21% year over year during a difficult ad environment.

Overall, Amazon's quarter was strong; it was just dragged down by its largest segment having difficult comparisons, because 2021's second quarter was still during the height of COVID-19. But should the company need to be split, it's challenging to determine which segments would go where.

AWS would likely need to be its own entity because it is unrelated to commerce. Advertising could be seen as a conflict of interest, as it should theoretically be a neutral marketplace. One seller could pay Amazon to place its product above other similar ones, even if it is lower rated or more expensive. The rest of the divisions -- online stores, physical stores, third-party services, and subscriptions -- could remain a separate company.

That leaves three separate businesses: cloud computing, advertising, and commerce. Now it's time to determine what each business is worth.

Valuation by parts

To determine what each entity is worth, I'll apply a valuation comparable to companies that perform services similar to the newly formed Amazon businesses. While this approach has flaws, it's a good way to estimate a valuation for each business.

First, investors could compare the commerce business to retail giants like Target Corporation (NYSE: TGT) or Wal-mart Stores, Inc.(NYSE: WMT). These two trade for 0.7 and 0.6 times sales, respectively. While these two companies have a more expensive physical footprint, Amazon has to pay for delivery. However, unlike Amazon's commerce business, Walmart and Target are consistently profitable. Because of this, I will apply a valuation of 0.5 times sales to Amazon's commerce business.

For advertising, The Trade Desk (NASDAQ: TTD) is a similar business. Its ad-tech platform connects buyers to sellers to ensure advertisers get the best results. Amazon's platform has similar capabilities but also deals directly with ads, unlike The Trade Desk. Because of this, I'm going to discount this business significantly. The Trade Desk is valued at 22 times sales, but I'm going to cut that in half for Amazon's ad business to 11 times sales.

Lastly, AWS is likely the most valuable. It's growing quickly and is highly profitable. Its two main competitors, Microsoft's (NASDAQ: MSFT)Azure and Alphabet's (NASDAQ: GOOGL)(NASDAQ: GOOG)Google Cloud, aren't stand-alone companies, so a valuation can't be deduced from them.

There aren't many businesses like it, but Adobe Inc.(NASDAQ: ADBE) comes close. The product isn't close to AWS, but its subscription revenue stream and high operating margins (35%) are similar to AWS. Adobe trades at 8.5 times sales, which is influenced by recent acquisition news. Before then, it traded at 11 times sales. I'll apply a valuation of 13 times sales to AWS to adjust for this drop and account for AWS' faster sales growth.

Now, let's see the value of all three businesses.

Source: Amazon. P/S = price to sales. TTM = trailing 12 months.

Now, let's add up those three segments. Using this method, Amazon's entire business is worth $1.5 trillion. However, its current market cap is $1.26 trillion. That means, according to my valuation method, the company's stock is currently undervalued by 19%. 

So, if Amazon gets broken up by regulators or through its own decision, investors will likely make a quick profit through a split. But that action might not happen.

One thing that is certain is that investors can purchase Amazon's stock today. With its recent price movement, it looks undervalued, and investors should consider establishing a position and holding it for an extended period, even if it gets broken up.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here's why splitting up Amazon could mean huge returns for shareholders appeared first on The Motley Fool Australia.

The buy now, pay later provider revealed Wednesday night that the likes of Amazon.com Inc (NASDAQ: AMZN), Nike Inc (NYSE: NKE), Target Corporation (NYSE: TGT), Sephora, Macy's and Dell Technologies are now available through its app.

Customers can now generate a single-use card to enter at checkout for any of these brands. The transaction is then facilitated by Afterpay, with all the usual benefits of instalment payments.

Nordstrom Inc, Walgreens Boots Alliance Inc, CVS Health Corp, Kroger Co, Victoria's Secret and Yeti Holdings Inc were also onboarded during the expansion.

The 12 brands, according to Afterpay, represent "almost half" of all the e-commerce volume processed in the United States.

Afterpay North American general manager Zahir Khoja said that consumer demand for online shopping remained high in the post-COVID era.

"Consumers still want the convenience and flexibility of buying with the click of a mouse as part of their 'new normal'," he said.

"We are thrilled to continue to support our customers by allowing them to shop every day at their favourite brands with Afterpay for things they need and want in their lives."

Adding more ways to use Afterpay to fuel growth

The development in North America comes after Afterpay revealed that more than 650,000 Australians signed up in the first 3 weeks of its contactless virtual Mastercard (NYSE: MA) offering.

That product enables customers to use the buy now, pay later service regardless of whether the merchant has an agreement with Afterpay.

"In-store [activity] is expected to further accelerate following the launch of the Afterpay Card in Australia," the company stated in its April quarterly update.

Afterpay shares have had a wild ride this year. Starting the year at $119, it surpassed $160 during intra-day trading in February, then dipped as low as $84.50 last month.

They were sitting at $122.90 after close of trading on Wednesday night, after gaining 3.17% during the day.

Morgan Stanley this week retained its overweight rating and $145 price target for the Australian fintech's stocks.

The post Afterpay (ASX:APT) onboards Amazon, Nike, Target to 'one-time card' appeared first on The Motley Fool Australia.

Rarely over the many years that I've covered share markets has that debate been as prevalent as it is today.

That's largely because the modern world finds itself in a wholly novel position. One with near-zero interest rates, seemingly inexhaustible levels of quantitative easing (QE), and massive pent up demand from businesses and consumers exiting pandemic lockdowns.

With growth shares broadly seen to be more dependent on easy money, value shares are increasingly in focus as rising inflation figures raise the spectre of rising interest rates.

The name of the game is patience

Growth shares can potentially deliver outsized gains in a relatively shorter time frame. That's often because investors are betting on big growth in future earnings.

Investors in value shares, on the other hand, need to be patient.

Josh Gilbert, eToro market analyst, told The Motley Fool that the strategy behind investing in value shares "is all about waiting out short-term market fluctuations in order to benefit from long-term returns. Beyond that, value investors require an eagerness to learn, and the ability comprehend a company's fundamental information and white papers".

Value shares are also a great means to tap into the power of compounding. 6% annual gains may not sound terribly exciting after the year we've just had. But via the magic of compounding, 6% annual gains will see you double your money in 12 years.

As Gilbert points out, "When you reinvest the returns and dividends earned from value stocks, your profit will grow significantly over time and your earnings will eventually begin to generate earnings of their own, with minimal extra work required."

He also told us that investing in value shares is generally less risky than most short-term investment strategies. That goes back to patience. Value investors with long-term horizons don't need to get ensnared in daily share price moves.

The downside to investing in value shares

"The biggest con is that generally value companies hide from plain site and undervalued shares worth investing can be difficult to identify," Gilbert said. "It can also take a long time for an undervalued stock to return to its intrinsically fair price. Value investors may have to hold their positions for years until the market sentiment changes in their favour."

The post-pandemic market rout was particularly painful for investors in value shares, which tend to be more closely aligned to overall economic health. With economies across the world going into reverse last year, most traditional value companies sold off heavily.

5 international value shares with a positive outlook

Gilbert left off with a list of 5 US-listed traditional value stocks.

Target Corporation (NYSE: TGT) and Walmart Inc (NYSE: WMT), he said, "are dividend-paying retail stocks that often perform well when the economy is booming".

In the financial sector, he said that JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co (NYSE: WFC) are popular value stocks:

These companies' price to earnings ratios are very low compared to the market average. JPMorgan Chase & Co's PE ratio is also currently lower than the average PE ratio of the financial sector. This is often a flag for investors that the stock may still be undervalued.

Then there's Johnson & Johnson (NYSE: JNJ).

According to Gilbert:

Healthcare stocks such as Johnson & Johnson are also known as value shares. Healthcare is one of the most recession-proof sectors in the economy. Johnson & Johnson are currently developing a COVID-19 vaccine, but its primary revenue source comes from pharmaceutical sales. The company has a steady revenue stream and also pays a dividend.

Gilbert said that, overall, the outlook for value shares is positive. "Value stocks have effectively been out of favour for many years as most investors focused on tech. However, we now see that investors are picking up value shares with cheaper valuations after a difficult 2020."

The post 5 international value shares with a positive outlook: analyst appeared first on The Motley Fool Australia.

This comes after the company provided an update on a new partnership deal with retailer Target in the United States.

New partnership

Sezzle shares are having a bumper morning following the company's latest release.

In its statement to the ASX, Sezzle advised it's entered into a 3-year agreement with retailing giant, Target Corporation (NYSE: TGT). The deal follows Sezzle completing its proof of concept (POC) with Target, which looked at the feasibility of teaming up.

Under the new agreement, Sezzle's platform will be available in-store and across Target's digital platforms. This will allow customers to make purchases at Target and take up Sezzle's interest-free payment plans.

The latest partnership is considered significant to Sezzle, as Target reported first-quarter earnings of US$2.1 billion last month. This was well up on the US$284 million the United States retailer achieved in the prior corresponding period when lockdowns were in full force.

Sezzle's underlying merchant sales for the same period rose to US$375.1 million, well up on the US$119.4 million figure from the previous year.

Quick take on Sezzle

Founded in 2016, Sezzle is a buy now, pay later (BNPL) company that offers customers the ability to shop online and pay over instalments. Repayments consist of 4 interest-free payments spread over a 6-week period.

As of March 2021, the BNPL business had more than 2.4 million active users and over 34,000 participating merchants. Sezzle operates largely in the United States and launched into Canada in 2019.

How has the Sezzle share price been performing?

It's been a rollercoaster ride for Sezzle shareholders of late, with the company's share price moving around sharply. Sezzle shares reached an all-time high of $11.99 in February this year, before falling to around the $7 mark in mid-May.

The post Why the Sezzle (ASX:SZL) share price is rocketing 13% today appeared first on The Motley Fool Australia.