Yesterday after the market closed, the company reported last quarter's earnings, which were significantly better than expectations. The stock is adding about 5% at the moment.
Reporting highlights
Revenue grew 13% YoY to $143.1 bln. Operating income increased 3.4x to $11.2 bln and net income increased 2.4x to $9.9 bln. Operating margin increased to 7.8%, the highest level since 2021. All metrics were above consensus forecasts.
E-commerce
Amazon continued to implement initiatives to reduce costs and accelerate delivery. In addition, the company has seen a steady recovery in sales and profitability on the platform in both the U.S. and international markets, which has put pressure on results for an extended period of time.
Markets in the UK, Germany, Japan and France all posted operating profits. The Emerging Markets business also showed tangible progress toward profitability. Combined, the International segment's operating loss narrowed by an impressive 96% YoY.
AWS
Segment revenue grew 12% YoY to $23.1 bln – below analysts' consensus by $0.1 bln. Nevertheless, the figure was clearly above market expectations of investors who were underwhelmed by Alphabet's results.
Management noted that customers continue to optimize workloads, but at a slower pace than in previous quarters.
Amazon expects revenue growth to continue on the back of increased demand for AI-enabled services, the resumption of customer migration to the cloud after an 18-month pause, and the continued departure of load optimization.
Advertising business
Segment revenue grew 26% YoY to $12.1bn, beating expectations of $11.6bn. The growth rate was higher than competitor Alphabet's 9% YoY and Meta Platforms' 13% YoY. In the advertising market, activation continues with Amazon steadily expanding its presence.
Amazon gave an outlook for the current quarter. It expects revenue growth of 9.6% YoY to the middle of its guidance range at $163.5 bln. This is below analysts' consensus of $166.6 bln.
My opinion
I consider Amazon one of the most interesting long-term ideas and continue to hold the stock in my portfolios. The reporting reinforced my view that the company is on a sustainable growth path after several years of business optimization.
I expect the stock to show outperformance in the coming years, thanks to normalization of e-commerce profitability, expansion of the advertising division in the global marketplace, and AWS's steady growth rate. In my view, Amazon stock still trades at an attractive risk/return ratio.
Target price is $190, upside potential +51%.
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