Amazon Jumps Above $1,100, Targets Hit $1,430: Growth Again Trumps Profit

Amazon Jumps Above $1,100, Targets Hit $1,430: Growth Again Trumps Profit

Shares of Amazon (AMZN) are up $130.9, or almost 14%, at $1,103.36, and earlier hit a new all-time high of $1,105, the first day it’s ever traded above $1,100, after the company yesterday afternoon blew away Q2 profit expectations, and forecast revenue this quarter slightly ahead of consensus.

Price targets are zooming today. The new high is $1,430, the new target of Ken Sena  at Wells Fargo.

The company’s retail growth accelerated in the quarter, from the prior quarter, we learned during its conference call, as did the margins on its cloud computing business, thanks to less price chopping at AWS.

There’s the familiar debate of growth versus margins today, and it looks like growth is once again winning out over margins.

On CNBC today, Mark Mahaney  of RBC Capital, a bull on the stock, told investors “don’t expect any margin expansion,” from Amazon or any other Internet giants in the next several years, as they’re all spending to stay ahead.

The stock has gotten two upgrades this morning, that I can see.

One is from Aaron Kessler of Raymond James, who raised his rating from Market Perform to Outperform, setting a $1,200 price target.

He’s putting aside the margin worries:

We note our downgrade back in April (link) was based on our 1) concern that Street operating income estimates were too high – Street estimates have since been reset; 2) expectation for less upside near-term for AWS as December price cuts cycled through – we believe this impacted 1H17 growth/margins though 3Q showed improved margins; 3) overall view that Amazon needs to show greater operating leverage for shares to move higher – we expect gradual improvement in margins (mostly North America near-term), though we are willing to accept lower near-term margins given Amazon’s robust growth across its segments and continue to believe there is meaningful long-term operating margin expansion potential.

And James Cakmak  with Monness Crespi Hardt  today raises his rating to Buy from Neutral, with a $1,250 price target, writing that the company is “marching toward becoming the first $1 trillion company.”

Our assessment was predicated on the FTC approving the Whole Foods deal. Since that time, several unknowns still lingered on potentially facilitating a minor correction to the stock, including uncertainty around the margin implications of consolidating Whole Foods, incremental margins at AWS from pricing changes, and escalating regulatory risk across big cap tech. Not only have the former two been answered favorably, but we now see Amazon as the safest company in the group from a regulatory standpoint. We recognize the stock had a tremendous run, but given the accelerating growth profile fueled by the breadth and depth of consumer engagement (further aided by tax cuts), coupled with the fact that the largest opportunities have yet to be conquered, we see the stage set to march toward $1T. Only then do we see regulatory risk resurfacing.

Michael Graham of Canaccord Genuity reiterates a Buy rating, and raises his price target on the stock to $1,250 from $1,200, writing that investors are likely to continue to fixate on growth versus profit:

In a repeat of Q1 and Q2, however, North American and International operating margins contracted y/y and Q4 operating income guidance points to the same trend. That said, investors (rightly, in our view) don’t seem to mind given the accelerating growth and opening up of new market opportunities like grocery. We expect these trends to continue for the foreseeable future, with a lower bound on operating margin of 0%. We continue to believe AMZN is early in its growth trajectory, and continue to like the stock.

Wells Fargo’s Sena takes the growth, and the above-consensus Q4 view, as evidence of his view that the economies of scale of tech are letting Amazon and other giants continually storm new areas:

We view this as bolstering our broader industry thesis that certain underlying advances with these majorly scaled audience platforms, namely around data collection, computing efficiency, and a broader industry transition towards a more adaptive- style of compute, stands to hasten efficient expansion into new areas. Moreover, as Prime, Fresh, and other new store formats (e.g., Go, Bookstores, etc.) become more integrated into the company’s Whole Foods business, we see an even stronger chance for such expansion in Amazon’s case. On this point, we find it interesting that just before the earnings call, it was reported that Amazon has received wholesale pharmacy licenses in 12 states (not to mention that now directs one to, further signaling the company’s ability to move into new markets, a topic we sized in our initiation.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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