Amazon.com (AMZN) reported “mixed” Q2 results versus higher expectations as retail margins failed to exceed by as much as expected, advertising growth slowed, the Amazon Web Services backlog declined and the revenue outlook for retail was “soft,” BofA Securities said in a note Friday.
For Q2, the company reported revenue slightly below expectations. Retail revenues fell short due to lower sales per unit, but margins were better than expected due to improved efficiency. Amazon Web Services growth was 19%, surpassing the 17% forecast, and AWS earned $9.3 billion in profit with a 36% margin, higher than the 32% estimate, the analysts said.
The midpoint of the company’s Q3 revenue forecast is $154 billion to 158.5 billion, however, Amazon typically exceeds its guidance, so if profits hit the high end of the range, it will grow quarter-over-quarter despite margin pressure from Prime Day and added retail capacity, which is a positive sign compared to usual seasonal trends, the analysts added.
“We remain constructive on the two key stock drivers: improving AWS trends (growth accelerated most versus peers in Q2, AI still early) and retail margin growth still intact into holidays (3Q profit could grow quarter-over-quarter and expect Q4 margins to be up year-over-year),” the analysts said in the note.
On the artificial intelligence front, the company has made key AI advancements, with AWS releasing more than twice as many machine learning and AI features in the past 18 months compared to other major cloud providers combined. Amazon’s GenAI-powered assistant is seeing strong use and has saved customers $260 million. AWS is also increasing the supply of its chips, with the new Trainium 2 chipset to be available in H2 and early 2025, the analysts said.
BofA Securities adjusted Amazon’s price objective to $210 from $220 while keeping its buy rating.