Amazon Q2 Earnings Preview: Gains From eCommerce and Cloud Business, Operating Margin Upside On Analysts Radar

Goldman Sachs analyst Eric Sheridan reiterated a Buy rating on Amazon.Com Inc AMZN with a price target of $250, up from $225.

Sheridan previewed Amazon’s upcoming second-quarter operating results and increased his above-Street 2025 GAAP operating income estimate (now +8% above) as he noted a margin upside.

Three central investor debates are heading into earnings, and according to the analyst, they are likely to drive incremental share price performance.

Based on various industry checks, Sheridan said Amazon’s eCommerce business remained strong in the second quarter.

The analyst flagged Amazon’s ability to continue producing operating income margin upside.

Sheridan noted the potential for outperformance in 2025 driven by higher retail margins & a stronger contribution of advertising and also maintained a positive long-term view on international margins and expects AWS profitability to remain robust.

Sheridan also highlighted the trajectory of AWS revenue growth. The analyst expects reacceleration through 2024 as prior headwinds around optimization and workload migration turn into tailwinds, and AI workloads are a rising tailwind.

Sheridan noted room for retail margins to continue expanding, driven by operating leverage on fixed retail assets, continued progress on lowering costs, a more moderate rate of inflation of important input costs, and the high-margin contribution of growing revenue streams.

The analyst expects the growing scale of Amazon’s advertising efforts to be an additional tailwind to reported consolidated operating income margins.

Sheridan projected fiscal 2024 revenue and operating income of $633.89 billion and $64.48 billion. The analyst expects fiscal 2025 revenue and operating income of $697.93 billion and $82.76 billion.

RBC Capital analyst Brad Erickson reiterated an Outperform rating on Amazon with a price target of $215.

Commentary from RBC’s early July off-quarter software bus tour suggested that Amazon’s GPU activity had improved through the quarter, which was encouraging, and Erickson expects management’s broader AI commentary to remain bullish, though with commentary likely to stay only qualitative.

Media reports emerged throughout the quarter regarding Amazon shifting its orders with Nvidia Corp NVDA to its next-gen chips. This could now be somewhat delayed until the impact there is decided. The bottom line is that Erickson expects the company’s steady reacceleration to continue pushing back against some type of a more dire share loss thesis as a function of AI.

Erickson expects the #2 and #3 players’ growth to continue outpacing but also remain focused if and as AWS gets back to the most considerable marginal dollar growth.

Sheridan projected fiscal 2024 revenue and operating income of $630.51 billion and $60.41 billion. The analyst expects fiscal 2025 revenue and operating income of $696.18 billion and $77.1 billion.

Price Action: AMZN shares traded lower by 1.12% to $181.16 at the last check on Tuesday.

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