Amazon earnings: Good results, with AWS still a winner; fear on profitability guidance is overblown
We think Amazon stock looks attractive.
Mentioned: Amazon.com Inc (AMZN)
Key Morningstar metrics for Amazon
- Fair Value Estimate: $245
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What we thought of Amazon’s earnings
Amazon.com reported second-quarter results that beat the high end of guidance on both the top and bottom lines. Revenue grew by 12% year over year in constant currency to $167.6 billion, while operating margin was 11.4% compared with 9.9% a year ago.
Why it matters: Results were clearly good, with upside on the top and bottom lines, which we think is positive against the macro backdrop. Trade deals are being inked rapidly, so our concerns about US tariffs have shrunk. Consumer buying behavior remains unchanged.
- Revenue in online stores, third-party sellers, subscriptions, and advertising came in ahead of our model, while Amazon’s physical stores underperformed. Amazon Web Services was largely in line. Advertising was impressive and helped buoy overall results once again.
The bottom line: We raise our fair value estimate to $245 per share from $240 based on the results and the mixed but generally solid guidance. The stock is trading down, which strikes us as an overreaction, and shares look attractive.
- While some might be disappointed by the AWS results, given the strong performance of peers, AWS faces the same capacity constraints and still came in ahead of our estimates for the first half of 2025.
- AWS margins, which were down noticeably from the first quarter, could also be weighing on the stock. The concern is valid, but profitability fluctuates for each segment and overall margins were strong. Overall, we think AWS margins can recover.
Coming up: Guidance is mixed compared with FactSet consensus estimates, with revenue ahead and profitability light. We have made only slight changes to our model based on performance and guidance.
- Satellite launch costs for Project Kuiper will likely pressure margins for a couple of quarters, while new AWS capacity coming online later this year should have a similar impact.
