Analyst Youssef Squali expects revenue to grow about 26 percent from last year, which is almost double the industry's average, driven by continued shift of commerce online, robust 3P and AWS businesses.
"While Amazon continues to invest heavily in growth initiatives and in international expansion, we expect margins to show improvement Y/Y, benefiting from growing scale, 3P and AWS," Squali wrote in a note.
The analyst projects revenues should be in line with (FactSet) consensus estimate of $29.53 billion (+27 percent year-over-year) in revenue and $1.10 in EPS. Squali sees revenue/EPS at $29.09 billion/$0.86, respectively, and note that Street EPS estimates vary from $0.49 to $1.85/share. Amazon guided for $28.0 billion–$30.5 billion in revenue.
The analyst expects gross margin of 36.9 percent, up +230bps year-over-year, reflecting a higher mix of AWS, 3P and digital and said his channel checks point to strong growth for Amazon in the second quarter.
Squali projects North America revenue to be up 25 percent, international up 19 percent on a reported basis and AWS revenue to grow 57 percent in the second quarter.
However, the analyst forecast that margin pressure is likely to persist.
Margin Pressure
"We're forecasting GAAP operating margin of 2.7 percent in 2Q:16, up just 70bps vs. the year-ago period, reflecting continued investment in fulfillment centers, India/China, video content, same-day delivery, Amazon Fresh, as well as expansion of AWS," Squali highlighted.
That said, the analyst noted that the strong momentum should carry into the third quarter of 2016. For the third quarter 2016, current consensus estimates stand at $31.63 billion (+24.7 percent year-over-year) for revenue and 2.6 percent operating margin. Squali sees third-quarter EPS of $1.05 on revenue of $31.35 billion.
Despite expecting the strong Prime day sales to contribute about 100bps to growth in third quarter, the analyst expects F/X to result in a revenue headwind of about $151 million versus the current expectations.
Squali maintains his Buy rating and price target of $800, which implies a potential return of 7 percent over Friday's close of $744.86.
At time of writing, Amazon was seen down slightly (down 0.26 percent) shortly into Monday's trading session at $742.95.
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