Key Morningstar Metrics for Amazon
- : USD 300Fair Value Estimate
- : ★★★★Morningstar Rating
- : WideMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
What We Thought of Amazon’s Earnings
Amazon AMZN reported second-quarter results that beat the high end of guidance on both the top and bottom lines. Revenue increased 20% year over year in constant currency to USD 200.6 billion, while operating margin was 13.7% versus 11.4% a year ago.
Why it matters: Overall results are good, as consumer spending remains stable, Prime Day was a success, the expansion of grocery and same-day delivery continues to drive demand, and artificial intelligence supports surging AWS growth. Further, profitability is impressive against various margin headwinds.
- All segments were ahead of our model, with physical stores slightly light, just like last quarter. Online stores, third-party seller services, and AWS were each more than USD 1 billion above expectations. We do not see any areas of concern with demand and believe the results support our positive long-term view on Amazon.
- Operating income was USD 27.5 billion with a margin of 13.7%, compared with the high end of guidance at USD 24.0 billion. Ramping up Leo costs, tariffs, massive data center expansion, and conflicts in Ukraine and the Middle East could have hampered results, but did not have a meaningful impact.
The bottom line: We raise our fair value estimate for wide-moat Amazon to USD 300 from USD 280 previously. Good results were matched by solid guidance, which drove increases in our estimates, particularly for AWS and advertising. Even with a pop in after-hours trading, we still see shares as attractive.
- AWS was strong, with growth accelerating sharply to 37% year over year, the fastest growth printed in 18 quarters, which is astounding given the unit’s scale. The surging demand spans both traditional and AI workloads and clearly supports management’s massive capital investment plans.
Coming up: The outlook for third-quarter revenue and profitability bracketed our estimates. The midpoint of guidance calls for revenue of USD 199.5 billion and operating profit of USD 24.5 billion.
