Amazon Stock Drops by 12%: Time to Buy after Selloff?

Amazon missed revenue expectations, but net sales still increased 10% in the second quarter.

Amazon (NASDAQ:AMZN), the leader in e-commerce, cloud computing and other services, had a rare revenue missed. The stock plummeted Friday by more than 12%. Should investors buy Amazon stock following the selloff?

The company generated $148.7 billion in revenue during the quarter, an increase of 10% over the same quarter last year. Analysts had predicted a median revenue of $148.7 Billion in the second quarter.

Net income increased by over two-fold to $13.5 billion from $6.7 billion a year earlier. Earnings increased to $1.29 a share, from 66 cents a share in Q2 of 2023. This was well above the $1.03 estimate per share.

Overreaction of investors?

Amazon’s net profit rose sharply, not only because of the revenue increase, but also due to effective cost management. Expenses rose by just 5% during the quarter. Sales and marketing was the area where Amazon made the biggest savings, with expenses falling 2% from a year earlier.

Amazon had predicted revenue between $144 billion and $1499 billion for Q2, which is up 7% to 11 % year-over-year. The $148 billion revenue was on the high end of the range, but analysts had expected more.

In e-commerce, North America saw its net sales increase 9%, to $90 billion. International sales increased 7%, to $31.7 billion. The pace of growth, however, was slower than in the previous quarter when these segments grew by 12% and 10% respectively.

Amazon Web Services, the company’s cloud computing business, enjoyed a strong quarter. Revenue was up 19% on an annual basis to $26.3 billion. This was a significant improvement over Q1, which saw AWS grow by 17%.

Andy Jassy said, “We are continuing to make progress in a number dimensions, but none more so than our continued reacceleration of AWS growth.” “As businesses continue to modernize and move to cloud computing, while also leveraging Generative AI, AWS remains the top choice for customers.”

NHL and NBA Prime Day

Amazon expects to achieve net sales between $154,0 billion and $158.5 million in the third quarter. This would be an 8% to 11% increase compared to the third quarter of 2019. This is the same growth rate that Amazon predicted for Q2.

It also expects operating income between $11.5 billion to $15.0 billion, as opposed to $11.2 billion for the third quarter of 2023. Operating income in Q2 was $14.7 billion.

The third quarter is expected to be a strong one from a revenue perspective, as it includes what Amazon has called the largest Prime Day shopping event of its history. The launch of two new seasons of Amazon’s most popular shows The Boys and Fallout was also part of the third quarter. Amazon also secured the rights to broadcast NHL Hockey on Monday nights, and streaming rights for NBA starting in 2025-26.

Amazon also launched some new AI-powered features including Rufus, an assistant for shopping, and expanded Amazon Pharmacy’s RxPass to offer Prime Members on Medicare unlimited consumption 60 common prescription medicines for $5 per month.

Amazon also signed new AWS contracts with several organizations including Commonwealth Bank of Australia (CBA), Databricks and Discover Financial Services (DFS), Eli Lilly and Company (Experian), GE HealthCares, NetApp, Scopely and ServiceNow and Shutterfly.

Further, it signed a strategic partnership worth $2 billion with the Australian Government to provide cloud services that will enhance the nation’s intelligence and defense capabilities.

Does Amazon stock make sense to buy after earnings?

The Friday sell-off appears to be a reaction to revenue estimates being missed that were higher than what the company had set.

Analysts’ reactions were mixed. While some analysts, such as Roth MKM and JMP Securities raised their price target, others, like Goldman Sachs, modestly lowered it.

Analysts still consider Amazon stock to be a buy, with a median price target of $220, which is a 33% increase from its current price of $166.

Investors can take advantage of Friday’s correction as it presents a good opportunity to buy, since the valuation was quite high with a P/E of just over 50%. Now, the P/E ratio is down to a more sensible 39.

In the coming weeks there could be even more volatility, as a price correction is taking place among large-cap stocks that are overheated. Amazon is a stock that will last forever, so if you buy it at this price, or even lower than that, then it’s a good deal.

This site is intended for entertainment only and does NOT offer financial advice.

Read more

Here is a link to the article