Amazon earnings: what Wall Street analysts are saying

Jeff Bezos.
Isaiah
Downing/Reuters

Amazon
on Thursday posted its largest
quarterly profit in its more than two decades as a
publicly-traded company.

The earnings were more than double what Wall Street analysts had
expected —
at $5.07 per share — leading to a slew of upgrades and price
target changes.

Nearly every analyst notes that Amazon’s gross margin was a major
driver of their freshly raised price targets, especially fueled
by Web Services, one of Amazon’s fastest-growing units.

Here’s what the Street is saying about the record quarter:

Goldman Sachs

Price target: $2,300 (from $2,100)

“We continue to believe that we are in the sweet spot between
Amazon investment cycles where new fulfillment/data centers are
driving accelerating growth while incremental capacity
utilization and efficiency is driving margin expansion,” analyst
Heath Terry said.

“Higher level, we remain in the early stages of the shift of
workloads to the cloud and the transition of traditional retail
online and, in our opinion, the market continues to underestimate
the long-term financial benefit of both to Amazon.” 

He continued: “While Amazon continues to invest in growing the
underlying infrastructure in both its retail and cloud businesses
(albeit at a slower pace for the moment), expanding its content,
developing new markets like India and Brazil, scaling its ad
business, and entering new categories like healthcare, it does so
while delivering significantly above average returns on
investment.”

RBC Capital Markets

Price target: $2,100 (from $1,900)

“Amazon Remains An Internet Staple: This was another very
impressive quarter, fundamentally speaking,” analyst Mark
Mahaney said. ”

64 Straight Quarters (except for 1 qtr) of 20%+ organic Revenue
Growth, though Profitability has admittedly been… uneven. But
now, it’s uneven UP, thanks to what we view as the Best Revenue
Mix Shift Story In Tech – i.e. AMZN’s fastest growing businesses
(AWS and AMS) are high-margin.” 

He added: “We also believe AMZN’s Core Retail biz is (finally?)
benefiting from scale efficiencies. Only thing required was a
$200B revenue run rate… And AMZN’s Growth Outlook is arguably the
strongest of the Major ‘Net Platforms, because it faces the
Largest (and Least Penetrated) total addressable market share
(TAMS) – $20T Retail (10%) and $1T Cloud (10%)…along with $1T
Advertising (30%), $5T Business Supplies (10%)…and maybe others.”

Nomura Instinet

Price target: $1,990 (from $1,808

“In a critical time, Amazon’s stellar sales and burgeoning margin
expansion helped decouple it from its FANG peers,” analyst Simeon
Siegel said. “We continue to believe the composition of Amazon’s
sales growth signals its future margin trajectory, putting it on
a march to increasing (& under-appreciated) profitability,
w/2Q18 representing the company’s largest margin expansion in
~two years.”

He continued: “As such, we wonder whether AMZN has actually
reached a size that makes it difficult to “outspend” sales
growth, suggesting that, looking ahead, leverage could come from
GM and SG&A.”

UBS

Price target: $2,150 (from $1,830)

“While some investors could focus on slower paid unit growth and
little/no upside to NA eCommerce revs, we think those
neutral/negative points were overwhelmed by better a better
gross/operating margin profile (the scale and profitability of
new businesses is taking hold), positive commentary on AWS (cloud
computing) and prospects of building/scaling a global digital
media & advertising platform,” analyst Eric Sheridan said.

“Despite the strong performance (+55% YTD), we still see AMZN
reaching new highs over the next 6 -12 months as the prospect of
seasonally strong periods for shopping and advertising play out.”

Credit Suisse:

Price target: $2,100 (from $2,000)

“As we have called out previously, Amazon has entered a relative
harvest cycle, and 2Q18 results showed incremental margin
expansion – year over year and sequential – for North America,
International, and AWS reporting segments,” analyst Stephen Ju
said.

“As expected, AWS also reported accelerating FX-neutral revenue
growth as it lapped price cuts from last year. Hence despite the
modest shortfall versus our revenue estimates, operating income
at $3b was significantly ahead of guidance, consensus, and our
estimate.”

Jefferies

Price target: $2,185 (from $,1950)

“Every major segment of the business contributed to results and
we see big tailwinds coming behind some of the most meaningful
segments, incl. AWS, Prime, and the fast-growing advertising
business, analyst Brent Thill said.

“We continue to highlight the strategic importance of AWS to
investors, which we think can cross $68B in annual revenue by
2022, becoming one of the largest enterprise software companies
on the planet, and providing $375B+ of market value (vs. AMZN
market cap of $877B today) over time.”

He added: “No change to our positive thesis – the dominance of
higher-margin AWS continues to afford Amazon the luxury of
investing significantly back into the core commerce business,
creating a virtuous cycle for both Amazon and its investors.”

GBH Insights

Price target: $$2,000

“Overall, we would characterize these results as
strong, with the bulls likely a bit disappointed that a “beat and
raise” on the topline did not materialize,” analyst Daniel Ives
said.

“AWS was the star of the show yet again, with North American
retail in-line while international had some soft spots.
Importantly, the massive beat on the margins/EPS and healthy
profitability outlook going forward will be a major positive that
investors will focus on when digesting results. In a nutshell,
after the Facebook debacle last night we believe the Street will
be somewhat relieved to see Amazon deliver another strong quarter
as the secular tailwinds on both the consumer and enterprise
fronts are massive for Bezos & Co. going forward.”

He continued: “The profitability trajectory appears to be
accelerating quicker than expected which given the leverage in
the Amazon model is a “potential game changer” that could
translate into further multiple expansion. We look forward to
hearing more details on the call around the consumer e-commerce
dynamics, Prime membership trends, AWS strength, and the
international build out.”

Macquarie

Price target: $2,200

“What we’ve been waiting on for many years is
finally happening, meaningful margin expansion. At scale, the
highest-margin businesses (AWS, advertising, 3P) are simply
growing so fast that AMZN is either not able or not willing to
reinvest enough to offset the margin expansion, analyst Benjamin
Schachter said. “This has been the bull thesis for years.” 

He added: “We suspect, though this is admittedly speculation,
that AMZN will have to re-enter the phone market either directly
or indirectly in order to drive Alexa adoption. We don’t see how
Alexa can evolve to its fullest potential without being available
prominently on the main device that so many people carry
everywhere, the smartphone.”

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