Amazon Exceeds Expectations in Q2 Earnings, Driven by Prime Day Success
Amazon.com (NASDAQ:AMZN) is preparing to release its second-quarter earnings report, and analysts are optimistic that the results will surpass estimates. The ecommerce giant is expected to report earnings per share (EPS) of $0.35 and revenue of $131.6 billion for the quarter. Operating income is projected to reach $4.7 billion, with a gross margin rate of 46.5%. However, the growth of Amazon Web Services (AWS) is predicted to decelerate to 10% year-over-year from 16% in Q1, generating revenue of $21.7 billion.
Investors are particularly interested in Amazon’s outlook for the full year, as well as discussions regarding AI innovation, healthcare opportunities, and associated costs. The earnings call will take place following the highly successful Prime Day event in July, which will be accounted for in the third-quarter report. According to Amazon, July 11 saw the single largest sales day in its history, with Prime members purchasing over 375 million items worldwide and saving more than $2.5 billion, both record-breaking figures.
The positive sentiment from analysts is reflected in Credit Suisse’s price target increase for Amazon, raising it from $142 to $176. Credit Suisse states that AMZN shares remain our favorite idea and maintains an Outperform rating based on expectations of e-commerce segment margin expansion, potential faster growth in free cash flow through its advertising segment, and the likelihood of upward revisions to AWS revenue forecasts.
Cowen analysts also maintain an optimistic outlook, projecting revenue of $132.8 billion for Q2, largely driven by e-commerce revenue. They anticipate operating income margins to rise to 4.2% from 2.4% a year ago. Cowen cites several factors that will contribute to Amazon’s future growth, including B2C e-commerce market share gains, opportunities in international markets like India, Mexico, and Australia, and tailwinds for AWS.
Despite a challenging year in 2022, with shares experiencing a 40% decline due to inflation and economic uncertainties, analysts, including Galvin, remain confident in Amazon’s long-term prospects. Galvin notes that although AWS may have lost some of its allure, there is potential for improvement in the coming months.
DA Davidson analysts applaud Amazon’s cost management measures but express some reservations about changing strategies. They point out that while consolidating shipments can improve costs and margins, it might have negative implications for sales due to a potential decline in customer frequency. Overall, DA Davidson is cautiously monitoring Amazon’s expenses and the impact on its future e-commerce growth.
Jefferies analysts highlight the stabilization of AWS and the ongoing improvement in profitability as factors driving their bullish stance on Amazon. They argue that the stock is attractive, trading at around 14x FY24E EBITDA, a 25% discount compared to the 10-year average. Jefferies will be closely following any indications of AWS growth in July, which could signal an upcoming acceleration.
With 37 Strong Buy ratings, 13 Buys, four Holds, and one Sell, Wall Street is largely positive on Amazon’s future prospects.
Despite a challenging year, Amazon’s Q2 earnings are expected to demonstrate its resilience and underscore its potential for long-term growth. Despite some concerns and shifting strategies, analysts remain mostly optimistic, emphasizing the opportunities for margin expansion, international market penetration, and the stabilization of AWS. The future remains promising for Amazon, as it continues to be a dominant force in the ecommerce industry.
