Amazon reported second-quarter results that beat the high end of guidance on both the top and bottom lines. Revenue grew by 12% year over year in constant currency to $167.6 billion, while operating margin was 11.4% versus 9.9% a year ago.
Why it matters: Results are clearly good, with upside on the top and bottom lines, which we think is positive against the macro backdrop. Trade deals are being inked rapidly, so any concerns we had around tariffs have shrunk. Consumer buying behavior remains unchanged.
- Amazon produced upside to revenue in online stores, third-party sellers, subscriptions, and advertising come in ahead of our model, while physical stores was light and AWS, was largely in line. Advertising was impressive and helped buoy overall results once again.
The bottom line: We raise our fair value estimate to $245 per share, from $240, based on good results and mixed but generally solid guidance. The stock is trading down after hours, which strikes us as an overreaction, and we therefore see shares as attractive.
- While there could be some disappointment around solid AWS results given strong results for peers, we note AWS faces the same capacity constraints and still produced very modest upside to our estimate in the first half of 2025. Artificial intelligence workloads are still growing in excess of 100% year over year.
- AWS margin performance, which was down noticeably from the second quarter, could also be weighing on the stock. This concern is not invalid but profitability fluctuates for each segment and overall margins were strong. Overall, we think there is room for AWS margins to recover.
Coming up: Guidance is mixed compared with FactSet consensus estimates, with revenue ahead and profitability light. Changes to our model are slight and based performance and guidance.
- Satellite launch costs for project Kuiper will likely pressure margins for a couple quarters, while new AWS capacity coming online later this year will have a similar impact.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
