Amazon earnings cheered as 'objectively excellent' - with any blemishes mere 'nitpicks'

By Emily Bary

Amazon is 'spitting off record profits and using these profits to fund the next leg of growth,' analyst says

Amazon.com Inc. was a favorite pick heading into this earnings season, and the company's results cleared the bar of Wall Street analysts.

While Amazon shares (AMZN) were seeing a somewhat muted reaction in Wednesday's premarket trading, up less than 2%, those analysts saw plenty of reason to cheer.

See also: Amazon earnings were all about AWS and AI

"We entered the quarter with a wish list: AWS acceleration, cost-to-serve leverage, [first-party] gross margin improvement and cost discipline on operating expenses," MoffettNathanson's Michael Morton wrote. "Amazon delivered on our list, but the next question to ask is: are the results 'good enough' to move numbers higher while increasing themarket's conviction on said projections? Emphatically, yes."

Morton was encouraged by the accelerating growth in Amazon's AWS cloud-computing business, driven in part by artificial intelligence and a lessening of "optimizations," or customer moves to drive greater spending efficiencies.

"Amazon's ability to keep pace with peers should help to alleviate market share concerns," Morton wrote, while keeping a buy rating on the stock and lifting his price target to $246 from $230.

Bernstein's Mark Shmulik said Amazon's earnings were "objectively excellent" - were it not for the "rising expectations" going into the report.

Those heightened expectations do matter, Shmulik added, but he also concluded that the question marks in the earnings simply are "nitpicks magnified when a name was as crowded as Amazon is."

Read: Why Amazon CEO Andy Jassy says the company is especially suited to win in AI

For one, while Amazon issued a softer-than-expected revenue forecast, Shmulik doesn't think that the company is facing "anything more than mosquito bites from would-be competitors." And while North America retail margins came down, he says operating-margin trends have turned seasonal, meaning that the company's domestic retail margins in the latest quarter could mark this year's floor.

Overall, he continues to like the opportunity in Amazon shares, boosting his price target to $210 from $200 while keeping an outperform rating.

"We have a company spitting off record profits and using these profits to fund the next leg of growth," he said. "This is what internet investing is all about."

The results indicated to HSBC analyst Christopher Johnen that Amazon is able to do it all.

"Asked about a potential pivot back to investments, management was clear on the call that Amazon now has the size to do both: investment and profits," he wrote. "We expect efficiency improvements as well as cost optimization to continue to carry a lot of weight in the quarters and years to come."

Johnen has a buy rating on Amazon shares, and he upped his price target to $220 from $200 after the report.

-Emily Bary

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05-01-24 0857ET

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