Amazon's Prime Day Sales Hit Record High, Is Its 9-Day Pullback a Buying Opportunity?

Amazon's Prime Day on July 16-17 saw record-breaking revenue and an all-time high in the number of customers registering for Prime in the three weeks leading up to the event.

However, Amazon's stock price hit a one-month low yesterday, dropping 2.2% after nine consecutive days of decline. This may be due to a shift in market sentiment towards small-cap stocks, following recent events such as the increasing odds of Trump winning the election and growing expectations of rate cuts.

In 2023, Amazon Web Services (AWS) accounted for 16% of the company's total revenue, yet with a high operating margin of 37.6%, it contributed two-thirds of the operating profit.

AWS is currently the largest enterprise cloud service provider, with "hundreds of thousands" of AI/ML customers, and approximately 96% of AI/ML unicorn companies and 90% of Forbes AI 50 companies operating on AWS. Since 2023, the company has launched 326 GenAI features, which AWS believes is far ahead of its major competitors such as Microsoft's Azure and Google Cloud Platform. Amazon stated that customers are signing longer-term and higher-commitment contracts, and both GenAI and non-GenAI workloads are growing.

JPMorgan analysts predict that AWS will grow by 18% in Q2, 19% in Q3, 20% in Q4, and achieve 20% growth in 2025. In Q1, AWS sales growth rate was 17.2%.

Amazon's North American business achieved an operating profit of $5 billion in Q1, while the international retail business achieved its first positive operating profit since 2021, with $890 million in operating profit. The profit margins for the retail business in North America and international markets were 5.8% and 2.8%, respectively.

JPM analysts believe that the core retail profit margin is still below pre-pandemic levels, but it is expected to recover and expand to new highs. The estimated core retail profit margin for 2023 is 5.0%. JPMorgan expects North America's core retail profit margin to reach 6% in 2024, benefiting from regionalization, SD1D delivery, and cost control. With the company's experience in regionalizing the United States used in international markets, better cost control, and higher demand, the international operating profit margin is expected to increase by 500bp to 3.0% in 2024.

Amazon has established itself as the third-largest digital advertising platform, accounting for about 9% of global online advertising revenue, with Google and Meta ranking first and second, accounting for 60%.

Sponsored Products are the main source of advertising revenue, and Amazon's high purchase intent and precise advertising targeting enable it to achieve a closed-loop between advertising and transactions, giving it significant operational advantages in the online advertising field.

In addition, JPMorgan analysts believe that Prime Video, Prime Music, Twitch/Gaming can bring incremental advertising revenue. Among them, Prime Video has the highest potential for advertising revenue, with 200 million global monthly active users, and the introduction of advertising may bring an annual increase in revenue of $3-4 billion in the short term.

Amazon is expected to announce its Q2 earnings after-market on August 1, and market expectations are high. The market expects the company to report Q2 earnings per share of $1.02, up 57.1% YoY, and revenue of $148.5 billion, up 10.5% YoY.

Consensus rating data from moomoo shows that 100% of analysts give Amazon a BUY rating, with an average target price of $223.36, representing a 21% upside potential.

Wolfe Research recently initiated coverage of Amazon with a target price of $250. The company is optimistic about Amazon's AWS revenue growth acceleration and profit margin expansion. Analysts told investors in a research report that Amazon is expected to continue to gain overall market share in the US retail market due to its non-discretionary product mix, faster delivery speed, loyal and habitual member base, and category expansion.

On July 10, TD Cowen raised Amazon's target stock price from $225 to $245. The company said that they are bullish on Amazon's stock performance ahead of the Q2 earnings release, citing growth driven by third-party seller sales, advertising, and AWS business growth.

On June 28, Wells Fargo raised Amazon's target stock price from $234 to $239, expecting the e-commerce giant to have another quarter of better-than-expected and upwardly-revised earnings. Analysts also pointed out some downside risks Amazon may face, including declining e-commerce penetration in regular goods, overall macroeconomic slowdown, increased competition from traditional and discount e-commerce companies, and an unfavorable ruling in the Federal Trade Commission's antitrust lawsuit.

by moomoo News Olivia