ii view: disappointing sales knock Amazon shares

Second-quarter results to 30 June 

• Net sales up by 10% to $148 billion (£115 billion) year-over-year
• Net income of $13.5 billion (£10.5 billion), up from $6.7 billion a year ago
• Earnings per share of $1.26, up from $0.65 per share

Guidance:

• Expects Q3 sales of between $154 billion and $158.5 billion, giving year-over-year growth of 8% to 11%

Chief executive Andy Jassy said: 

“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,”

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ii round-up:

Retail conglomerate Amazon.com Inc (NASDAQ:AMZN) detailed sales which missed Wall Street forecasts as consumers remained cautious and amid intense competition from Chinese competitors such as Temu.

Second-quarter sales to late June rose 10% to $148 billion, missing analyst estimates of $148.5 billion. Although sales at its closely watched cloud business exceeded forecasts, climbing 19% to $26.3 billion, both retail and advertising fell short. Accompanying management sales estimates for the current third quarter also proved shy of hopes, predicting year-over-year growth of 8-11% compared to forecasts of up to 12%.  

Shares in the Nasdaq 100 company fell 5% in afterhours US trading having come into this latest news up 21% year-to-date. That’s similar to fellow cloud data hosting company and owner of Google, Alphabet Inc Class A (NASDAQ:GOOGL), and ahead of a 14% gain for the Nasdaq 100 tech index.

Amazon earnings growth for a near doubling year-over-year to $1.26 per share exceeded forecasts of $1.03 per share, aided by the tech giant's continuing focus on costs. 

Sales at its North American business, including both retail and advertising, rose 9% from a year ago to $90 billion, with sales for the International business up 7% to $31.7 billion.

Post results management comments pointed to the distraction which sporting and news events such as the Olympics and Trump shooting can have on customer web traffic flows. 

Broker Morgan Stanley reiterated its ‘overweight’ stance post the results, highlighting the shares as a ‘top pick’.  

ii view:

Set up as an online book selling website by Jeff Bezos, during 2023 Amazon continued to generate almost two-thirds of its sales via retail, with cloud or AWS at 16%, advertising 8%, and subscriptions and physical stores most of the balance. Geographically, the US remains dominant at nearly 70% of sales last year, with Germany, the UK, and Japan, all notable others at around 5-6% each.

For investors, heightened borrowing costs continue to place pressure on disposable income. Competition for its various areas is intense, with the likes of Microsoft Corp (NASDAQ:MSFT) in the cloud sector, Meta Platforms Inc Class A (NASDAQ:META) chasing ad related sales and Chinese players in the retail space competing hard on price. Questions regarding appropriate valuations for tech companies continue to be asked, while management’s referencing of global news events providing consumer distractions warrant deliberation.  

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On the upside, cost cuts given an overspend during the pandemic continue to shine through. The founding retail business is now accompanied by significant other businesses such as AWS, a major global force in its own right, while investment in artificial intelligence (AI) services continues, with the popularity of its Alexa devices offering interesting future potential.  

For now, and while recent investor enthusiasm for tech stocks offers some room for caution, a consensus analyst estimate of fair value above $220 per share, appears to point towards continued optimism on Wall Street.  

Positives

• Dominant position in online retailing
• Pushing AI initiatives and investments

Negatives

• Government concerns for monopolistic powers
• Currency movements can hinder performance

The average rating of stock market analysts:

Buy