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Stock Analyst Update

Amazon Shows Signs of Life With Solid Earnings Results and Guidance

Amazon stock is one of our top picks; looks attractive with a fair value estimate of $192.

Mentioned:

Amazon Stock at a Glance

  • Current Morningstar Fair Value Estimate: $192
  • Star Rating: 4 Stars
  • Economic Moat Rating: Wide
  • Moat Trend Rating: Stable

Amazon Earnings Update

Amazon (AMZN) reported good second-quarter top-line and bottom-line results which were ahead of FactSet consensus expectations and provided an encouraging revenue outlook for the third quarter. While AWS remains a tremendous opportunity and performed well once again, the more important takeaway this quarter is that retail-related businesses, especially third-party seller services, are coming back and even delivered some upside compared with our expectations. We are not ready to declare victory for the company just yet, but we are encouraged by results and note that the pandemic-fueled growth surge is now removed from prior-year comparisons, so growth should optically improve going forward.

Amazon is a Top Pick

We are maintaining our $192 fair value estimate for wide-moat Amazon. Even with shares up after earnings results, we continue to view shares as attractive, as Amazon remains one of our top picks.

Solid Revenue Performance

Second-quarter revenue grew 7% year over year as reported, or 10% in constant currency, to $121.2 billion, compared with guidance of $116 billion to $121 billion. The currency headwind was 120 basis points worse than what was called for within guidance. For perspective, the comparison last year was 27% growth, so still challenging. In short, the top-line performance is showing improvement and was solid. From a retail perspective, online stores declined 3% year over year, physical stores improved 12%, third-party seller services grew 9%, and subscription services increased 10%. Increases on Prime membership fees and third-party seller fees helped revenue while Prime member churn was better than expected. Unit growth was 1%. The two most critical segments, AWS and advertising, grew 33% and 18% over the year-ago period, respectively. Compared with our model, third-party seller services and AWS drove the largest revenue outperformance.

Dan Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.