Amazon Earnings: E-Commerce Improves, AWS Stabilizes, and Margins Surge

Wide-moat Amazon reported good third-quarter results and provided better-than-expected guidance for the fourth quarter. Profitability was strong and is expected to remain healthy in the near term. While e-commerce was solid and continues to rebound, Amazon Web Services optimization has stabilized, although growth fell slightly shy of our expectations. Still, commentary was encouraging about AWS improving further over the next several quarters. Continued operational improvements brought on by the move to regional hubs have resulted in better operating leverage than anticipated. We still envision healthy long-term growth driven by e-commerce proliferation, AWS, and advertising, and believe the biggest near-term issue remains the health of the consumer rather than business spending on the cloud. After increasing our profitability assumptions modestly based on results and guidance, we are increasing our fair value estimate to $155 per share, from $150 previously, and see shares as attractive.