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Still a "strong buy" after earnings Miss



<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Amazon.com, Inc. & # 39 ; s ( AMZN ) five quarters of transition analysts' earnings expectations were closed after the company's second-quarter release on July 25. Not only did the e-commerce giant report on earnings missions, but it also warned that 3rd Operation Revenue will After the release, the shares were down nearly 2% at the end of Thursday's trading hours after hours and have fallen over 4% over the past three days. "data-reactid =" 1
1 "> Amazon.com, Inc. ( AMZN ) The five-quarter streak of transient analysts' earnings expectations ended after the company's release of the second quarter on July 25. Not only did the e-commerce giant report a loss of revenue, but it also warned that Q3 operating revenues are subject to the current consensus estimates. After the release, the shares were down nearly 2% at the end of Thursday's trading hours and have fallen over 4% over the past three days.

Many analysts argue that AMZN is a compelling purchase. In fact, it has a "strong buy" analyst consensus, with at least 16 buy reviews received over the last four days. The stock boasts an average $ 2,282 price target, indicating 20% ​​upside potential.

We wanted to look more closely at whether the revenue loss is a temporary miss or a long-term trend.

Q2 Results

The company reported that quarterly revenue increased 20% year over year to $ 63.4 billion, beating Street & # 39; s estimates of $ 62.5 billion. This growth follows AMZN's $ 800 million investment in upgrading the Prime service to one-day shipping.

However, all these expenditures affected the profit margins which in turn hurt the revenue. Net revenue for the quarter was $ 2.6 billion, the lowest level since Q2 2018. EPS reached $ 5.22, missing consensus estimates of $ 5.57. While operating revenues increased by 3% from the previous year, this figure is expected to contract by 16% in the third quarter. Management's guidance has operating revenues that fall within the range of $ 2.1 billion to $ 3.1 billion, much lower than the street's $ 4.4 billion estimates.

Regardless of the negative feeling surrounding the release, the management is pleased with the results. "Customers are responding to Prime & # 39's transition to a one-day delivery – we've received a lot of positive feedback and seen accelerated sales growth," said CEO Jeff Bezos. "Free one-day delivery is now available to Prime members on more than ten million items, and we're just getting started."

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 cm) – sm "type =" text "content =" Five Star Analyst, Jason Helfstein agrees that investors should look past the revenue loss to see the bigger picture. On July 26, the Oppenheimer analyst maintained its buy rating and $ 2,100 price target, suggesting 11% upside potential. "The company's second-quarter revenues exceeded modest Street estimates as e-commerce response on 1-Day Prime compensated for lower revenue from Amazon Web Services. We expect investors to see marginal market pressure given Amazon's success in investing," he said . The analyst gets an average return of 21% per rank and has a 66% success rate. "Data-reactid =" 34 "> Five-star analyst Jason Helfstein agrees that investors should look past the revenue loss to see the bigger picture. On July, the Oppenheimer analyst maintained its Buy rating and $ 2,100 price target, suggesting a 11% upside potential, and its second-quarter revenues exceeded modest Street estimates as real-time 1-Prime Prime E-commerce compensation offset lower Amazon Web Services revenue. We expect investors to review the long-term margin pressure given Amazon's success in investing, "he said. The analyst gets an average return of 21% per rank and has a success rate of 66%.

Why was AWS continued slowly?

After the revenue release this quarter, many investors were wondering what happened to AWS? The cloud computing platform had e n growth of 37% from the previous year. Despite increased investment, it still represents a decline of 42% from the first quarter.

<p class = "canvas-atom canvas text Mb (1.0 em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "AMZN's critics may point to the competitor, Microsoft Corporation ( MSFT ), as the reason for this decline, during which time revenue from the Azure platform increased to 64%, but this gain also represents a year-on-year decline and was the lowest growth rate of at least four years. "data-reactid =" 41 "> AMZN's critics may point to its rival, Microsoft Corporation ( MSFT ), as the cause of this decline. In the same time period, revenue on the Azure platform increased at a rate of 64%. However, this gain also represents a year-on-year decline and was the lowest growth rate of at least four years.

<p class = "canvas atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "Top Financial Blogger, Billy Duberstein writes, "So while some may fear that AWS & # 39; decline & # 39; and reduction in profitability is a sign of better competition, I wouldn't panic about it yet. As Amazon has shown, investments usually pay off, although investors may not see it right away, as they did with a day's shipment. "& nbsp; & nbsp;" data-reactid = "42"> Top financial blogger, Billy Duberstein, writes, "Although some may fear that AWS & # 39; recession & # 39; s and profitability reduction are a sign of better competition, I would not panic over As Amazon has shown, investments usually pay off, although investors may not see it right away, as they did with a day's shipping. "

<p class =" canvas-atom canvas-text Mb (1.0 em) Mb (0) – sm Mt (0.8 em) – sm "type =" text "content =" Mizuho Securities analyst, James Lee also sees AMZN's long-term growth potential as unchanged after the revenue release. On July 26, he maintained the buy rating while increasing the price target from $ 2,080 to $ 2,200. He believes stock prices could increase by 16% over the next twelve months. "Despite the slow cost headwinds, we are still confident of Amazon's ability to gain market share and operational efficiency over time. As a result, we raise the EBITDA estimate from 2021 by 4% to $ 66 billion," he said. reactid = "43"> Mizuho Securities analyst James Lee also sees AMZN's long-term growth potential unchanged following the earnings announcement July 26. He maintained the buy rating while increasing the price target from $ 2,080 to $ 2,200. He believes stock prices could increase 16% over the next twelve months. "Despite the slow cost headwinds, we are confident of Amazon's ability to achieve market share and operational efficiency over time. As a result, we raise the EBITDA estimate from 2021 by 4% to $ 66 billion, "he said.

Advertising revenue has room to grow

AMZN's advertising business has also inspired investor confidence.

<p class = "Canvas Atom Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "At a 37% year over year growth, Amazon's advertising business surpasses both Facebook's ([19659018] FB ) and Alphabet & # 39; s ( GOOGL ). FB's advertising revenue was up 28% in the second quarter, while GOOGL gained 16% over the same time period. "data-reactid =" 46 "> With a growth rate of 37% year over year, Amazon's advertising business surpasses both Facebook's ( FB ) and Alphabet's ( GOOGL ). of 28% in the second quarter, while GOOGL increased by 16% over the same period.

In the second quarter, sales from sponsored product ads more than doubled year over year, while sales from sponsored brands increased by 53% from the previous year. also focus on video ads, and it required most ad-supported video on demand apps to give 30% of their ad inventory to sell on their own in September 2018.

<p class = "canvas atom canvas-text Mb ( 1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" The door is also open for AMZN to expand its access globally. Financial blogger, Adam Levy writes: "If Amazon can recreate the results of Facebook and Google in terms of geographic mix, it can practically double its long-term advertising revenue just by expanding its services and tools into multiple markets. some major opportunities ahead for Amazon's advertising business, investors should expect the relatively high margin area to continue to grow significantly faster than rivals and the more mature businesses. "" data-reactid = "48"> The door is also open to AMZN to expand access globally. Economic blogger Adam Levy writes: "If Amazon can recreate Facebook and Google results in terms of geographic mix, it can practically double its long-term advertising revenue just by expanding its services and tools into multiple markets. With some major opportunities ahead for Amazon's advertising business, investors should expect the relatively high margin area to continue to grow significantly faster than rivals and the more mature businesses. "

The Bottom Line

With 100% of the ratings over the past three months as Buys, it is clear that analysts are willing to wait for AMZN's investments to translate into revenue growth, because they believe big things are in store .


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