Amazon’s Profits Likely To Surge Through The End Of The Year

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AMZN: Amazon logo
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Amazon

E-commerce giant Amazon (NASDAQ:AMZN) announced its second quarter results on July 26, reporting a sustained high double digit (39%) year-over-year increase in net revenues to just under $53 billion. The company has reported a strong period of growth in the last few years, driven by both Amazon Web Services (AWS) and the core commerce businesses. Amazon also successfully managed to improve profitability in the quarter, which led its earnings per share to be over 100% higher than the midpoint of the consensus estimate range. This trend is likely to continue through the end of the year, with profit margins continuing to soar in the latter half of the year.

What To Expect In The Second Half

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Amazon’s core e-commerce and complementing grocery, in-house products (Echo, Kindle) and subscription (Prime) revenues have continued their growth spree this year. Amazon’s net revenues rose 40% on a y-o-y basis in each of the two quarters in the first half of the year. In the latter half of the year, Amazon’s revenue growth is expected to slow down to around 25%, which is still impressive given the large base factor. We forecast net revenue to increase 35% to $238 billion for the year, with Amazon North America revenues expected to increase at around the same rate to $144 billion. We expect Amazon International revenues to be up 27% to nearly $70 billion. Meanwhile, AWS revenues are are expected to be around 44% higher on a y-o-y basis to $25 billion.

In terms of profits, margins are forecast to increase by over a percentage point even as the company continues to invest heavily in expansion plans in international markets. We forecast its operating margin to expand to 11.3% for the year, up from 10% in 2017, due to which EPS could lie in the $11.50-$12 range. The consensus estimates for Amazon’s earnings per share for 2018 range from $9 to $17 per share, compared to around $6.20 through 2017. We have created an interactive earnings forecast dashboard for Amazon where you can modify segment revenue and margin forecasts to gauge how any changes will impact the company’s expected results for the full year. We have a revised $1,505 price estimate for Amazon, which is lower than the current market price. Amazon’s stock price has surged from around $1,200 at the beginning of the year to $1,800 currently.

See our complete analysis for Amazon

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