Amazon Q2 - Beat & Raise

Last Thursday, Amazon released fantastic results which blew away expectations. This is what we like to see! The share price surged 10%, taking the whole Nasdaq higher on Friday. Heading into the release many analysts were worried about rising costs and slowing e-commerce sales, but Amazon managed to face these challenges very well.

Sales increased by 7% for the quarter to $121 billion. Guidance for next the quarter suggests a further 13 to 17% increase, so revenue momentum is strong. US e-commerce grew over 10% to $74.5 billion. International e-commerce sales went backwards a bit, accounting for $27 billion in sales. The remaining sales contributor is Amazon Web Services (AWS) with $19.7 billion.

As mentioned yesterday, AWS brought in all the operating income for the quarter because the e-commerce division made a loss. Some analysts seem to think AWS could be worth $1 trillion on its own. With a total market cap of $1.38 trillion, the e-commerce business looks like it's undervalued. E-commerce also includes subscription services (Amazon Prime) and the highly profitable advertising business.

The reason e-commerce is making a loss is because it is still expanding fast internationally, and building a presence from scratch is expensive. They are also rightsizing the operation after some abnormal demand during Covid lockdowns.

Amazon is a great business that has proven time and time again how well it can execute. Although the share price has recovered by 28% from its June 2022 lows, it is still 23% below its 2021 highs. We think this weakness presents investors with a very good buying opportunity.