We
are
raising
our
fair
value
estimate
for
wide-moat
Amazon
to
$195
per
share
from
$193
after
the
company
reported
solid
second-quarter
results.
• Fair
Value
Estimate:
$195
• Morningstar
Rating:
3
stars
• Morningstar
Economic
Moat
Rating:
Wide
• Morningstar
Uncertainty
Rating:
High
What
We
Thought
of
Amazon’s
Earnings
The
company’s
third-quarter
outlook
aligned
with
our
revenue
estimate
and
was
better
than
our
operating
income
estimate.
Changes
to
our
model
are
modest
but
center
around
continued
profitability
enhancements
in
the
near
term.
Amazon
continues
to
take
strides
in
efficiency
improvements
throughout
the
network,
which
helps
lower
costs
and
improve
delivery
speeds
and
ultimately
drives
increased
purchases
by
prime
members.
After
a
pullback
that
began
in
early
July,
we
see
shares
as
increasingly
attractive.
AWS
Ahead
of
Our
Model
Overall
demand
trends
remain
unchanged
over
the
last
year
or
so,
with
e-commerce
showing
signs
of
consumer
stress.
Second-quarter
revenue
grew
10%
year-over-year
as
reported,
or
11%
in
constant
currency,
to
$148.0
billion,
compared
with
the
guidance
mid-point
of
$146.5
billion.
Relative
to
our
estimates,
online
stores
and
third-party
seller
services
drove
most
of
the
miss,
while
all
segments
were
slightly
light.
Amazon
Web
Services
was
nicely
ahead
of
our
model.
The
two
key
segments
for
long-term
growth,
AWS
and
advertising,
increased
19%
and
20%
year
over
year,
as
reported,
respectively.
Amazon’s
advertising
growth
continues
to
outpace
its
large
internet
peers,
while
AWS’
growth
accelerated
sequentially
for
the
fourth
straight
quarter.
Margins
have
been
consistently
stronger
than
anticipated
over
the
past
year,
and
we
continue
to
believe
there
is
room
for
expansion
as
the
multihub
strategy
continues
to
unlock
efficiencies.
Second-quarter
profitability
was
impressive,
with
operating
profit
at
$14.7
billion,
compared
with
the
high
end
of
guidance
at
$14.0
billion.
This
resulted
in
an
operating
margin
of
9.9%,
compared
with
5.7%
a
year
ago.
The
international
unit
generated
positive
operating
profits
for
the
second
straight
quarter,
which
we
think
is
a
harbinger
for
longer-term
expansion.
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