Barclays Upgrades Amazon to Overweight, Says 'Seeing Clearly Through the Cloud'

In a report published Friday, Barclays analyst Paul Vogel upgraded the rating on

from Equal Weight to Overweight, while raising the price target from $412 to $700. Analyst Paul Vogel commented, "For some time, we have believed that Amazon margins would grow slower than bullish expectations and had been concerned with a deceleration in revenue. Clearly, we have been too pessimistic on the near-term leverage in model as margins are expanding much faster than we thought." Vogel pointed out further that Amazon had achieved an impressive rebound in revenue growth outside the US as well as AWS revenue growth in Q2, both of which had been "a surprise." Vogel considers these trends as "sustainable" over the next few quarters. In 2Q, Amazon achieved AWS margin expansion to 21 percent, from 16 percent in the previous quarter. Moreover, but retail margins were significantly better than expected, improving to 3.2 percent, as compared to the Barclays estimate of 1.5 percent. The EPS estimates for 2015 and 2016 have been raised from $5.26 to $5.74 and from $7.33 to $10.57, respectively. In the report Barclays noted, "We normally shy away from ratings changes on quarters as we tend to wait for the stock to settle after a big move and then re-evaluate. This quarter was too good in our view to wait and, despite the sizable move in the stock already this year (and aftermarket), we now believe there is even more upside."