Amazon has beat expectations in every quarter since the start of the pandemic last spring.
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Expectations are rising that Amazon will post blowout results when it reports June quarter results on Thursday. But there are some lingering concerns about whether the company’s torrid growth rate will slow once the economy fully reopens.
Amazon has projected sales at $110 billion to $116 billion, with operating income in the $4.5 billion-to-$8 billion range. Street consensus calls for sales of $115.4 billion, operating income of $7.8 billion and earnings of $12.28 a share.
There are reasons behind the growing hopes for over-the-top results. For one thing, that’s been the pattern. The company has beat expectations in every quarter since the start of the pandemic last spring. The Street projects continued strong growth for both e-commerce and the Amazon Web Services cloud computing business, and recent blowout results for both Snap and Twitter would suggest the company could post accelerating growth in its underappreciated advertising business.
Wedbush analyst Michael Pachter writes that Amazon’s profitability should continue to improve as it grows operating expenses more slowly than revenue. He thinks AWS, ads, and the fulfillment business should all provide steady margin expansion, with growth in the Amazon Prime membership service driving retail revenue growth.
Pachter projects 2021 revenue growth will slow to 27% from 38% last year, but that would still be above the 20% growth rate in 2019 before the pandemic. He repeats his Outperform rating and $4,300 price target.
Credit Suisse analyst Stephen Ju likewise repeats his Outperform rating but lifts his price target to $4,850, from $4,000. He notes that the company has been aggressively investing in e-commerce infrastructure, and is likely to roll out an expanded offering for same-day delivery. “Amazon should be entering a relative harvest cycle after a period of intense investment in capacity,” he writes.
Ju sees operating margin expansion ahead, and the potential for faster-than-expected free cash flow growth driven by the ad business. And he sees “upward bias” to revenue forecasts for Amazon Web Services.
BofA Global Securities analyst Justin Post maintains his Buy rating but trims his target price to $4,350, from $4,360. He has some modest concerns about what happens from here. Post thinks June quarter results will be in line with estimates, but trimmed his estimates for the September quarter on concerns about “headwinds” for the e-commerce business with U.S. government stimulus fading and physical retail stores reopening.
He thinks the stock will show better performance once the company provides fourth-quarter guidance—in the September-quarter report—and gets “more normal growth comps.”
Amazon shares on Monday were up 1%, to $3,693.
Write to Eric J. Savitz at [email protected]
