Amazon's earnings report shows efficiency improvements and strong outlook, leading to increased attractiveness.
From Morningstar: 2024-08-09 06:18:00
Amazon.com (AMZN) released its second-quarter earnings report on August 1. Morningstar’s take on Amazon’s earnings and stock outlook includes third-quarter outlook matching revenue estimates, efficiency improvements lowering costs, and improving delivery speeds driving increased purchases by Prime members. AWS shifts back to growth mode with generative AI driving customer attention. Management emphasizes the multi-billion dollar book of business from generative AI.
Amazon is well-positioned in generative AI with proprietary chips like Trainium and Inferentia and AI-related solutions. Management believes AI can add tens of billions of dollars to revenue over the next several years. Amazon plans to increase capital investments in data center capacity in the second half of the year with expected capital expenditures exceeding $32.5 billion. E-commerce demand shows signs of consumer stress, with Amazon focusing on expanding selection, improving delivery speed, and driving order frequency and ticket sizes for Prime members.
Shares of Amazon are seen as increasingly attractive after a pullback that began in July. The fair value estimate for Amazon is $195 per share with a 4-star rating from Morningstar. Amazon has a wide moat rating based on network effects, cost advantages, and switching costs. Covid-19 has accelerated change and widened Amazon’s lead in the industry.
Financially, Amazon is sound with rapidly growing revenue, expanding margins, and a strong balance sheet. The marketplace remains attractive for third-party sellers, with AWS and advertising driving overall corporate growth. However, Amazon faces medium uncertainty, needing to protect its leading online retailing position and maintain its value proposition for third-party sellers.
Bulls say Amazon is the e-commerce leader with unrivaled scale, high-margin advertising, and AWS driving growth and profitability. Bears express concerns about rising regulatory challenges, new investments impacting free cash flow growth, and potential difficulties in penetrating new retail categories.
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