Analysts Aren't Shaken By Amazon's Q2 Earnings

E-commerce giant Amazon.com, Inc. AMZN reported second-quarter results that fell short of expectations across multiple metrics.

Amazon earned $5.22 per share in the quarter on revenue of $63.4 billion. This compares to the Street's expectations of $5.58 per share and $62.4 billion. Revenue from Amazon's cloud business AWS came in at $8.38 billion.

Multiple Street analysts weighed in on Amazon's report and management's outlook.

The Good And Bad

Amazon's second quarter includes two positive takeaways and three negative read-outs, Raymond James' Aaron Kessler wrote in a note.

On the positive front North America retail sales accelerated from 16.6% last quarter to 20.2% and unit growth accelerated from 10% to 18%. On the other hand, GAAP operating income of $3.1 billion fell short of expectations, AWS revenue growth slowed from 40% last quarter to 37% and management's third quarter GAAP operating guidance came in lower than expected.

Seen This Story Before

Amazon reported a revenue beat of nearly $900 million but profit fell short due to new investments in one-day shipping initiatives, Benchmark's Daniel Kurnos wrote in a note. This strategy is similar to prior years when Amazon heavily invested in its warehouse and datacenters.

"If shares demonstrate any kind of material weakness on the soft results today, we would be buyers on the pullback," Kurnos wrote.

See Also: FAANG Shares Mixed As Alphabet's Earnings Beat Expectations, Amazon's Fall Short

AWS Concerns

Amazon's AWS business showed its fourth consecutive sequential drop in operating margins at 25% in the quarter, KeyBanc Capital Markets' Edward Yruma wrote in a note. This will add to existing concerns related to the competitive market against rival giants like Microsoft's MSFT Azure and Google Cloud.

"AWS has a formidable lead and first-mover advantage in IaaS and is maintaining AWS estimates for this year and next, but the slowdown warrants further investigation into multi-cloud competitive dynamics," Yruma said.

Regulatory Concerns Are Legitimate

Amazon's management didn't comment on regulatory risk in the U.S. but it's a topic worthy of monitoring, DA Davidson's Tom Forte wrote in a note. In fact, regulatory concerns represents the largest risk to Amazon's stock.

"The increase in third-party unit sales to 54% from 53% as favorable, given the increasing regulatory focus across the globe on concerns that Amazon favors first-party sales to the detriment of third-party ones," Forte said.

Acceleration Ahead

Amazon guided its third-quarter revenue (foreign exchange neutral) to rise 24% year-over-year at the high end, which implies an acceleration from 21% in the second quarter, Mizuho's James Lee wrote in a note. On the other hand, third-quarter operating income guidance of $3.1 billion at the high end missed expectations of $4.3 billion due to ongoing investments in delivery initiatives.

"We believe the investment in Prime will enable Amazon to gain market share in ecommerce, and AWS and advertising are still in early adoption cycles with a high margin profile," Lee said.

Ratings And Price Targets

• Raymond James maintains at Outperform, price target lifted from $2,030 to $2,080.
• Benchmark maintains at Buy, $2,300 price target.
• KeyBanc maintains at Overweight, $2,200 price target.
• DA Davidson maintains at Buy, $2,550 price target.
• Mizuho maintains at Buy, price target lifted from $2,080 to $2,200.

Amazon traded lower by 2% to $1,934 per share at time of publication.