9 Amazon Analysts Break Down Q2 Earnings: 'Comps Tougher Than Expected'

Amazon.com, Inc. AMZN shares traded lower by 7% on Friday after the company reported slowing revenue growth in the second quarter and issued weak guidance for the second half of the year.

Amazon reported second-quarter adjusted EPS of $15.12, beating analyst estimates of $12.30. Revenue for the quarter was $113.0 billion, missing consensus forecasts of $115.2 billion. Revenue was up 27% from a year ago.

Amazon Web Services revenue was up 37% to $14.81 billion, surpassing analyst estimates of $14.2 billion. Amazon’s “Other” segment revenue, which includes advertising and other services, was up 87%.

Looking ahead, Amazon guided for third-quarter revenue of between $106 billion and $112 billion, well below analyst estimates of $119.2 billion. The guidance range represents between 10% and 16% year-over-year growth, a sharp drop from the roughly 40% growth Amazon has reported in the last several quarters.

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Tough Comps: Mizuho analyst James Lee said year-over-year comps are proving “tougher than expected,” but Amazon’s cloud and ad businesses are performing well.

“We remain positive on AMZN long-term, and believe its valuation is attractive at 13x FY23 EBITDA compared to 30% CAGR,” Lee wrote in a note.

Morgan Stanley analyst Brian Nowak said Amazon is dealing with a one-two punch of slowing retail revenue growth and rising investment eating into profits.

“From a tactical perspective, we see this retail deceleration putting even more importance on a same day offering, which we see as a potential revenue and market share accelerant,” Nowak wrote.

Raymond James analyst Aaron Kessler said the economic reopening will place a great deal of pressure on Amazon’s e-commerce business in the near term.

“Despite this near-term deceleration in retail sales, we believe overall growth rates remain healthy and we look for retail growth to reaccelerate in 2022,” Kessler wrote.

Next Catalysts: JMP Securities analyst Ronald Josey said it’s understandable why investors are concerned about Amazon’s slowing growth.
“But we also believe that consumer behavior changes toward eCommerce due to the pandemic are lasting and that given the continued health of the consumer (at least domestically), Amazon remains among the best-positioned providers overall,” Josey wrote.

Credit Suisse analyst Stephen Ju said the next major catalysts for Amazon are the ramp of one-day delivery and the launch of same-day Prime delivery.

“As management reiterated that the consumer responds positively to higher/faster service levels – unit volume accelerated following one day Prime delivery launch in 2Q19 – we believe it is only a matter of time before we see a similar impact as Amazon deploys fulfillment assets into the Holidays,” Ju wrote.

Needham analyst Laura Martin said Amazon’s e-commerce business is extremely cheaply valued by the market.

“AMZN's EV today is $1.9T, but after subtracting AWS, subscription and ad values, our calculations imply that investors are paying about 0.5x for AMZN's 2021E eCommerce revs,” Martin wrote.

Long-Term Thesis Intact: Telsey Advisory Group analyst Joseph Feldman said Amazon is becoming a victim of its own 2020 success.

“That said, we believe Amazon is executing at a high level and should continue to gain market share by leveraging its sticky customer base (over 200MM global Prime members), small business relationships, and retail consolidation,” Feldman wrote.

KeyBanc analyst Edward Yruma said Prime Member spending is up year-over-year, and Amazon has made tremendous strides since before the pandemic.

“Amazon.com will have been one of the strongest beneficiaries of COVID-driven secular acceleration, but we believe reopening will drive lumpiness in growth rates,” Yruma wrote.

Bank of America analyst Justin Post said the sales slowdown is just a temporary speed bump in a long road of growth ahead for Amazon.

“While outlook was disappointing, and bears could argue Amazon is investing in 1-Day fulfilment out of competitive necessity (Walmart, DoorDash, Uber local delivery), we think Amazon remains in a solid position, with US retail growth likely above industry growth rates (indicating continuing share gains),” Post wrote.

• AMZN Ratings And Price Targets: Mizuho has a Buy rating and $4,100 target.
• Morgan Stanley has an Overweight rating and $4,300 target.
• Raymond James has an Outperform rating and $3,900 target.
• JMP has an Outperform rating and $4,500 target.
• Credit Suisse has an Outperform rating and $4,700 target.
• Needham has a Buy rating and $4,150 target.
• Telsey has an Outperform rating and $4,000 target.
• KeyBanc has an Overweight rating and $4,000 target.
• Bank of America has a Buy rating and $4,250 target.