Amazon Shares Plunge After Mixed Earnings Report, Analysts Offer Mixed Views on Future Growth
Amazon.com Inc (AMZN) shares experienced a significant decline in early trading on Friday following the company’s release of mixed second-quarter results. The earnings report, coming amidst an exciting earnings season, left investors and analysts with a range of interpretations, with some expressing optimism about the company’s future, while others remain cautious.
Key Takeaways:
- Amazon’s second-quarter revenue reached $148 billion, marking a 10% year-on-year increase, but fell short of analyst expectations. This performance highlights the ongoing challenges the company faces in navigating a complex economic landscape.
- Amazon’s cloud computing arm, Amazon Web Services (AWS), continues to demonstrate strong performance, with revenue growth of 19%. This indicates a continued shift towards cloud services as a key growth driver for Amazon.
- Retail revenue growth slowed, although the company reported some sequential expansion in core retail margins. This suggests that the retail sector is facing headwinds, despite the company’s efforts to optimize margins.
- Analysts remain divided on the company’s future prospects. While some see continued growth potential in AWS and advertising, others express concern about the company’s retail segment and rising capital expenditures.
A Deep Dive into the Analyst Views
Following the earnings release, a chorus of analysts weighed in, providing their insights and perspectives on Amazon’s performance and future trajectory.
AWS Strength and Retail Challenges
Several analysts, including Thomas Champion of Piper Sandler and Doug Anmuth of JPMorgan, highlighted the strength of AWS as a re-acceleration engine for Amazon. Champion noted that AWS exceeded street expectations with 19% growth, a positive sign for the company. Anmuth, while acknowledging the solid growth in AWS, expressed concern over the slower growth in the retail sector and the potential for margin headwinds in the third quarter. He emphasized the importance of AWS in driving future growth and its positioning across the full Generative AI tech stack.
Mixed Signals from Guidance
Eric Sheridan of Goldman Sachs, while recognizing the strong performance of AWS and international business, acknowledged that the third-quarter revenue guidance fell short of expectations. This led to a reduction in his price target.
Rohit Kulkarni of Roth Capital Partners, while optimistic about the reacceleration of AWS revenue growth, expressed concern over the company’s third-quarter guidance, citing potential softness in retail hiring and sales of high-ticket items. He also highlighted the increasing capital expenditure, particularly driven by the growing demand for AWS AI infrastructure.
Shifting Revenue Mix
Justin Post of BofA Securities, who maintained a Buy rating on AMZN shares, pointed out that the midpoint of the third-quarter revenue guidance range came in below analyst expectations, indicating a slowdown in revenue growth. He acknowledged the positive surprise from AWS growth in AI workloads, but also highlighted the potential for seasonality and margin pressure related to Prime Day.
Nicholas Jones of JMP Securities highlighted the potential of Amazon’s advertising business, particularly within Prime Video and retail websites. He expressed optimism for the continued durability of the company’s retail business, driven by expanding selection and optimization efforts.
A Focus on Advertising and Logistics
Youssef Squali of Truist Securities, while acknowledging the positive performances of AWS and advertising, cited the negative impact of foreign exchange and macroeconomic factors on Marketplace, impacting average selling prices and discretionary spending.Despite this, he remains confident in Amazon’s position as a key player in Cloud, AI, digital ads, and logistics.
Long-Term Growth Expectations Remain
While some analysts cautioned about the company’s near-term trajectory, several expressed confidence in Amazon’s long-term growth potential. Scott Devitt of Wedbush, for instance, highlighted the substantial growth potential of AWS, predicting 20% year-on-year growth by the fourth quarter. He sees the increasing contribution of AWS and advertising revenue as a structural shift that will drive significant profit growth in the years to come.
Michael Morris of Guggenheim Securities provided a positive outlook based on the high demand for Amazon’s advertising inventory, citing a sellout of ad space for their Black Friday NFL game. This indicates strong confidence in the effectiveness of Amazon’s advertising platform.
Conclusion
Amazon’s earnings report generated a mixed reaction from analysts, with some highlighting the continued strength of AWS and its potential to drive future growth, while others expressed concern about the slowing retail growth and rising capital expenditures. The company’s third-quarter guidance presented a mixed bag, with some analysts seeing opportunities for outperformance and others citing potential challenges. Ultimately, the long-term success of Amazon will depend on its ability to navigate these challenges and capitalize on the evolving digital landscape, with a particular focus on the expansion of AWS, advertising, and logistics.
