Amazon’s second-quarter earnings preview: E-commerce and cloud profits, rising operating margins are what analysts focus on
Goldman Sachs analyst Eric Sheridan raised his price target on Amazon.com (NASDAQ:AMZN) to $250 from $225 and reiterated his buy recommendation on the stock.
Sheridan previewed Amazon’s second-quarter results, noting margin upside and raising his 2025 GAAP operating profit forecast above market expectations (currently 8% above).
There are three central talking points among investors heading into the earnings report that analysts say are likely to drive the stock price higher.
Sheridan said that based on research across a range of industries, Amazon’s e-commerce business continued to perform well in the second quarter.
Analysts noted Amazon’s ability to continue growing its operating margins.
Sheridan noted that rising retail margins and stronger advertising contributions could drive upside in 2025, and he maintains a positive long-term outlook for international margins, expecting AWS profitability to remain strong.
Sheridan also highlighted AWS’ revenue growth trajectory, which analysts expect to re-accelerate through 2024 as previous headwinds around optimization and workload migration turn into tailwinds, driven by AI workloads.
Sheridan noted that there is scope for retail margins to continue to expand due to operating leverage in fixed retail assets, continued progress in cost reduction, moderating inflation in key input costs and higher margin contributions from growing revenue streams.
Analysts expect the scale of Amazon’s advertising efforts to be an additional tailwind to its reported consolidated operating margins.
Sheridan expects sales and operating profit to be $633.89 billion and $64.48 billion, respectively, in fiscal 2024. Analysts expect sales and operating profit to be $697.93 billion and $82.76 billion, respectively, in fiscal 2025.
RBC Capital analyst Brad Erickson set a $215 price target on Amazon and reiterated his outperform rating.
Commentary during RBC’s off-quarter software bus tour in early July suggested that Amazon’s GPU activity improved throughout the quarter, which was encouraging, and Ericsson said he expects management’s broader commentary on AI to remain bullish, though the commentary is likely to remain qualitative.
Throughout the quarter, reports emerged that Amazon was switching orders to Nvidia Corp (NASDAQ:NVDA) for the company’s next-generation chips, a move that may be delayed somewhat until the impact on the company is known. In short, Ericsson expects the company’s steady re-acceleration to continue countering theories of a more severe share decline as a function of AI.
Ericsson expects growth from the second and third-largest players to continue to outpace growth, but will remain focused on AWS as it returns to maximum marginal dollar growth.
The story continues
Sheridan expects sales and operating profit to be $630.51 billion and $60.41 billion, respectively, in fiscal 2024. Analysts expect sales and operating profit to be $696.18 billion and $77.1 billion, respectively, in fiscal 2025.
Price Action: AMZN shares were down 1.12% at $181.16 as of last check on Tuesday.
Photo by ANIRUDH on Unsplash
Latest AMZN Ratings
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March 2022
Deutsche Bank
Start covering
buy
February 2022
Tigress Financial
maintain
buy
February 2022
Credit Suisse
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Excellent
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The article “Amazon Q2 Revenue Forecast: E-commerce and Cloud Business Gains, Rising Operating Margins on Analysts’ Radar” originally appeared on Benzinga.com.
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