August 5, 2021 8:00 AM
 — 
3
 min

Amazon disappointed investors

buy

Amazon, the world's largest online retailer, increased its net profit by more than 48% in Q2, but the online shopping boom fueled by the pandemic appears to be fading away. Revenue increased by 27% and reached $ 113.080 billion against $ 88.912 billion a year earlier. Net income in April-June was $ 7.778 billion, or $ 15.12 per share, compared to $ 5.243 billion, or $ 10.3 per share, received in the same period last year. Although the company's revenue surpassed the $ 100 billion mark for the third quarter in a row, the market regarded last quarter's growth as weak, as it jumped 44% in January-March. Experts, on average, expected the company to receive earnings of $ 12.28 per share in the second quarter on revenue of $ 115.4 billion. The financial statements disappointed investors, so the company's stock prices fell 7% after the publication of the financial statements.

TIKR
AMZN

PRICE
$3328

TARGET PRICE
$4400

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32%

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10Y UST
1,184(0.00%)

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$38,110(-0.15%)

Sales in Amazon online stores in April-June increased by 13% - to $ 53.16 billion, while the average forecast was $ 57.35 billion. In the previous four quarters, the growth rate of this indicator was at least 37%. In physical stores, including Whole Foods Market, sales increased 10% to $ 4.2 billion. Sales in North America increased 21.9% to $ 67.55 billion, and overseas sales rose 35.5% to $ 30.721 billion. Revenue of cloud service Amazon Web Services (AWS) rose by 37%, amounting to $ 14.809 billion. Analysts estimated it at an average of $ 14.28 billion. Amazon management predicts that in the third quarter the slowdown in revenue growth will continue, and it will amount to $ 106 -112 billion (an increase of 10-16% in annual terms). Operating income is expected to be $ 2.5-6 billion, up from $ 6.2 billion in July-September last year.

The swelling of Amazon came as an unpleasant surprise, so we lowered our valuation of the company's stock by $ 200 to $ 4,400. Nevertheless, we like the company's business. Among the main drivers of Amazon's business growth, which should ensure stable revenue growth over the next few years, we highlight the following: 1). Further increase in the company's global market share in the B2C e-commerce segment. 2). Active business development in other e-commerce segments such as B2B. 3). Significant opportunities in existing and new international markets such as India, Mexico and Australia. 4). Significant growth in AWS Cloud segment revenues averaged 25% per year over 2021–2026, driven by increased business process migration to the cloud. five). Development of the AMZN Advertising platform, which will drive revenue and profit growth in the future.

Amazon.com primarily comprises a global retail e-Commerce business, as well as Amazon Web Services cloud provider and Whole Foods grocery stores. The company offers programs that enable sellers to sell their products on its websites and their own branded websites and to fulfill orders through them, and programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content. Amazon operates in three segments: North America, International, and AWS. The company designs its websites to enable millions of products to be sold by the company and by third parties across dozens of product categories. Customers access its websites directly and through its mobile websites and apps. It also manufactures and sells hardware devices including Echo, Fire, and Kindle, among others.

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