Shares in Amazon (AMZN) soared 5% in Thursday’s after-hours trading after the e-commerce giant reported a strong set of results for the second quarter.
Specifically, Q2 GAAP EPS of $10.30 beat Street estimates by a whopping $8.80, while revenue of $88.91B beat by $7.62B- and marked a considerable 40% year-over-year increase. Operating Income of $5.8B came in $4.6B above the Street driven by strong demand growth, mix shift to softline & hardline products, and positive flow through given high fixed costs.
Notably core North America Retail growth accelerated a stellar 19pts to 51% year-over-year – the highest level since Q2:11. International Retail growth also accelerated 11pts to 41% ex-FX, an all-time high. Prime member growth and renewal rates accelerated in addition to strong buyer frequency and larger basket sizes, while Unit Growth skyrocketed to 57% year-over-year—Amazon’s highest in a long, long time.
And although AWS revenue of $10.81B fell slightly short of the expected $11.02B, it still saw sequential margin improvement of 100 bps. Meanwhile free cash flow rose to $31.9B for the trailing twelve months, compared with $25.0 billion for the trailing twelve months ended June 30, 2019.
Looking forward, 3Q20 guidance range for revenue came in ahead of consensus at the mid-point, which implies ~28% year-over-year growth at the mid-point (vs. +40% in 2Q20).
“This was another highly unusual quarter,” said Jeff Bezos, Amazon CEO. “As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter… [and] we injected significant money into the economy, investing over $9 billion in capital projects, including fulfillment, transportation, and AWS.”
Following the report SunTrust Robinson analyst Youssef Squali bumped up his price target from $3,400 to $3,600, while reiterating his buy rating on the stock. “We note the company achieved these results while spending >$4B on COVID related expenses. Normalizing for this spend implies double digit operating margins, which we believe is an all-time high” he commented.
“Though AWS growth continues to decelerate, we believe AMZN is investing back into customer by helping them decrease usage and save money, which should only entrench it further” the analyst told investors. For Squali, AMZN remains one of his favorite stocks for 2020, representing a best-in-class way to invest against mega-trends around e-commerce, advertising and cloud.
Meanwhile RBC Capital’s Mark Mahaney argues that Amazon has now raised the bar even higher. “AMZN printed strong Revenue growth acceleration in its Core Online Retail segments (highest since 2011!) as the co. continued to fully participate and benefit from the COVID-powered Online Retail Structural Acceleration” he wrote on July 31.
Plus he points out that Q3 Revenue guidance implies continuing, healthy trends for Amazon, with expected growth rates to be higher than pre-COVID level. Mahaney expects Amazon to reach record-high profits in ’21 and ’22—thanks to AWS, AMS, Prime subscription, and cost efficiencies. As a result, the analyst boosted his Amazon price target from $3,300 to $3,800 following the print.
Overall, AMZN scores a bullish Strong Buy Street consensus with an average analyst price target of $3,249 (6% upside potential). Shares in Amazon have already climbed 65% year-to-date. (See AMZN stock analysis on TipRanks).