Q2 Earnings Preview: Why Amazon, Uber, Google Are JPMorgan's Top Picks

As the Q2 earnings season approaches, Amazon.com Inc AMZN, Uber Technologies Inc UBER, and Alphabet Inc GOOG GOOGL, Google’s parent company, are emerging as standout picks.

JPMorgan analyst Doug Anmuth highlights Amazon, Uber, and Google as top picks as we approach the Q2 2024 earnings season. Despite the mixed performance of the internet sector so far this year, Anmuth remains optimistic about these large-cap names, even as some concerns about elevated expectations and potential consumer spending slowdowns in the second half of the year persist.

Let’s dive into what makes each of these stocks the analysts’ top picks:

Amazon: Steady Growth and Strong Free Cash Flow

Amazon remains Anmuth's favorite stock, both in the near and long term.

The company is well-positioned for continued growth in its core areas, including Amazon Web Services (AWS) and its retail operations. Anmuth anticipates a near-term acceleration in AWS, with a projected 20% growth in Q4 2024, driven by easing optimizations, new workload migrations, and the ramping of GenAI monetization.

He expects Amazon's North America operating income (OI) margin to expand by 190 basis points in 2024, supported by improvements in shipping and inventory placement, automation, and advertising. Amazon's free cash flow is projected to reach $66 billion in 2024 and $86 billion in 2025.

For Q2, Anmuth says investors expect net sales of between $148 billion and $150 billion and operating income of $14 billion to $15 billion or more.

Google – GenAI Offensive, Margin Expansion

Google's strong performance is highlighted by its offensive stance in Generative AI (GenAI), meaningful margin expansion, and a favorable advertising backdrop.

The company’s stock is near all-time highs and continues to benefit from strong Search and YouTube revenue growth. Google's progress in GenAI, coupled with better-than-expected ad revenue, has boosted investor sentiment.

Anmuth's projections for Alphabet include a 13% year-over-year FX-neutral revenue growth and a GAAP operating income margin of 30.8%, reflecting a 140 basis point improvement.

However, the upcoming decision on the DOJ search distribution trial remains a significant concern.

Uber – Resilient Demand, Profitability Initiatives

Uber stands out in the rides and food delivery sector, which has faced recent pressures due to various factors, including noise around Tesla Inc's robotaxi event and weaker restaurant traffic data. Despite these challenges, Uber's rideshare indicators remain strong, with accelerating MAU growth potentially driving further mobility growth.

Anmuth highlights Uber's commitment to profitability and shareholder returns. The company has consistently beaten its EBITDA guidance and recently emphasized greater accuracy in its projections. Uber has also initiated a buyback program, with Anmuth estimating a $7 billion buyback over three years, possibly completed in two years.

For Q2, Uber's rideshare business is expected to show a 26% year-over-year growth in gross bookings, while the food delivery segment may face some pressure from weaker restaurant traffic, potentially affecting the 17.5% year-over-year growth forecast for delivery gross bookings.

Anmuth remains positive on the internet sector as a whole, noting the bifurcated performance year-to-date, with a market cap-weighted average gain of 30% versus a 3% decline in the overall coverage universe. As the earnings season kicks off, investors will be closely watching these large-cap internet names for their continued growth and resilience amid evolving market dynamics.

Amazon, Uber, and Google are well-positioned heading into Q2 2024 earnings, supported by solid underlying trends, strategic growth initiatives, and strong financial performance, making them top picks for investors according to JPMorgan.

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