Mixed earnings send Amazon down – but analysts still champion stock
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Mixed earnings send Amazon down – but analysts still champion stock

Ecommerce titan Amazon reported mixed second-quarter earnings at the end of last week that sent its share price down. It’s hard to consider the company’s results a failure, given that all its metrics are still showing growth, but analysts and investors have come to expect bombastic returns every reporting season. As a result, investors punished Jeff Bezos’ online “everything store” going into the weekend. Analysts, however, say this might be overdone…

Despite taking a hit on Friday, Amazon’s share price is still up by 31% year to date

Amazon July 29

Source: Yahoo Finance

First of all, here are the numbers: Amazon beat the Street’s predictions for revenue, returning $63.4 billion rather than $62.5 billion (a 20% increase from the previous year), but it missed on earnings. Analysts had hoped to see the company post earnings per share of $5.57, but the company fell short by some 25c, posting a figure of $5.22 instead. Similarly, Amazon logged a slight miss against expectations when it came to its cloud computing arm, Amazon Web Services (AWS) – widely seen as a potential game-changer for the company.

The big news is Amazon’s earnings miss – revenue was up (and beat expectations) and AWS continues on its blockbuster trajectory (despite missing expectations, AWS’s growth came in at 37% year on year – hardly a gross misstep). What, then, is going on with the company’s profit margins? Simple: it’s dedicated itself to one-day Prime delivery, amongst other innovations ($800 million in the second quarter alone) that will keep it competitive. In other words, as Moody’s Amazon analyst Charlie O’Shea said in a recent email, the earnings miss “is an example of short-term pain for long-term gain”.

O’Shea is not the only analyst that thinks investors made a mistake by punishing the stock. Barclays’ analysts said: “The long-term story is improving on retail revenue acceleration, and AWS continues to add more dollar share than Azure/GCP combined, despite missing consensus.” Mizuho analysts added: “we remain confident about Amazon’s ability to gain market share and operating efficiency over time.” And Credit Suisse analysts praised the company’s “offensive stance” which it says has helped put “greater distance between Amazon’s consumer value proposition and that of its competitors.”

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


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