Amazon Could Be On The Verge Of Substantial Earnings Growth, Says Wedbush

Amazon.com, Inc. AMZN is scheduled to report its Q2 results on July 28.

Wedbush’s Michael Pachter reiterated an Outperform rating on the company, while raising the price target from $775 to $835.

Poised For Earnings Growth

Following years of “uneven profits,” Pachter believes the company is finally “poised to deliver substantial earnings growth,” following the significant earnings beat in 1Q16.

Gross and operating margins at AWS have increased as revenues have continued to ramp, while the mix of fulfillment by Amazon and Aws is expected to lead to further gross margin expansion.

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“Prime membership growth has continued unabated and we expect the monthly Prime subscription offering to substantially inflate the number of Prime customers seasonally, particularly around the holidays,” Pachter mentioned.

However, the company is also expected to meaningfully increase annual spending on video content by $500 million per year, which would offset the gross margin expansion.

Q2 Expectations

Pachter expects Amazon to report its Q2 revenue at the high end of the guidance, with upside to the estimate and the consensus expectations, driven by Prime membership growth and AWS expansion.

Operating income is also expected toward the higher end of the guidance range, since Amazon is likely to have invested in multiple growth initiatives during the quarter.

Pachter expects the company to increase its SVOD marketing efforts in the near future.

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