Expectations are rising that
will release blowout results when it reports June quarterly results on Thursday. But there are some lingering concerns about whether the company’s scorching growth rate will slow once the economy fully reopens.
Amazon has forecast revenue of $110 billion to $116 billion, with operating income in the $4.5 billion to $8 billion range. Street consensus calls for revenue of $115.4 billion, operating income of $7.8 billion and earnings of $12.28 per share.
There are reasons behind the growing hope for over-the-top results. For starters, that’s been the pattern. The company has exceeded expectations in every quarter since the start of the pandemic last spring. The Street projects continued to grow strongly for both e-commerce and Amazon Web Services’ cloud computing businesses, and recent blowout results for both Snap and Twitter suggest the company could see accelerated growth in its undervalued advertising business.
Wedbush analyst Michael Pachter writes that Amazon’s profitability should continue to improve as operating expenses grow more slowly than revenues. He thinks AWS, advertising and the fulfillment business should all drive steady margin expansion, with the growth of the Amazon Prime membership service driving retail revenue growth.
Pachter expects revenue growth to slow to 27% in 2021 from 38% last year, but that would still be above the 20% growth rate in 2019 pre-pandemic. He reiterates his Outperform rating and a price target of $4,300.
Credit Suisse analyst Stephen Ju also repeats its Outperform rating, but raises its price target from $4,000 to $4,850. He notes that the company has aggressively invested in e-commerce infrastructure and is likely to roll out an expanded same-day delivery offering. “Amazon should enter a relative harvest cycle after a period of intensive investment in capacity,” he writes.
Ju sees the prospect of operating margin expansion and the potential for faster-than-expected free cash flow growth, driven by the advertising business. And he sees “upward bias” in Amazon Web Services revenue forecasts.
BofA Global Securities Analyst Justin Post maintains its buy recommendation, but lowers its target price to $4,350, from $4,360. He has some modest concerns about what happens from here. Post thinks June quarterly results will be in line with estimates, but lowered its September quarter estimates amid concerns about “headwinds” for e-commerce business, with US government stimulus fading and brick-and-mortar stores reopening.
He thinks the stock will show better performance once the company gives its fourth quarter guidance – in its September quarterly report – and gets “more normal growth compositions.”
Amazon shares rose 1% to $3,693 on Monday.
Write to Eric J. Savitz at firstname.lastname@example.org