Amazon has never given granular detail about its business, preferring to keep investors, analysts and the media as far away as possible from knowing the ins and outs of its operations. For investors and analysts alike, that’s okay. The Seattle-based retailer missed Wall Street expectations, losing 2 cents a share on $15.7 billion in revenue during the June quarter. Analysts were looking for Amazon to earn 5 cents a share on $15.73 billion in revenue. But despite the miss and the below revenue guidance, Jefferies analyst Brian Pitz raised his price target on Amazon to $350, citing operating income and consolidated segment operating income (CSOI) margins being better-than-expected. “This is now the 7th straight quarter operating income has exceeded the high end of guidance, despite continuing investments,” Pitz wrote in the note.
Deutsche Bank analyst Ross Sandler, who rates shares Buy with a $335 price target, notes the bull case for Amazon is still there, as gross profit accelerated to 38% year-over-year. “Paid unit growth decelerated modestly (to 29% YoY growth), but given GP accelerated 3 out of the previous 5 quarters in the face of unit deceleration, we find the metric less relevant,” Sandler noted. “Our bullish thesis is based on AMZN being one of the few large cap internet names growing top-line 30%+ while seeing operational improvements.”
Despite lackluster reviews of its hardware, the Kindle ecosystem appears to be performing well, as seen in strength in North American Media revenue. “This result highlights the growing importance of hardware/software ecosystems to media consumption (i.e. NA Media strength in 1H due to a larger Kindle install base),” UBS analyst Eric Sheridan wrote in a note. He subsequently raised his price target to $305 after the report.
Amazon continues to invest in its businesses, moving into a wide array of segments. Seeing as CSOI and operating income continue to improve while the company invests, Wall Street believes Amazon deserves to trade higher.
No wonder there’s a smile on every box.