, Inc. PTs Upped, Wall Street’s In Love

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Amazon thoroughly pleased Wall Street last night with its second quarter earnings report, and analysts from most firms have raised their price targets. The online retailer posted $30.4 billion in revenue, handily beating the consensus of $29.5 billion and coming in toward the top of management’s guidance for $28 billion to $30.5 billion. Earnings were $1.78 per share, which smashed the consensus of $1.11 per share.

Following last night’s earnings report, Amazon shares soared to a new high of $766 per share before pulling back slightly. The stock is trading at $761.72 as of this writing.

Amazon’s execution strong across the board

JPMorgan analysts upped their target for Amazon stock from $908 to $925 per share. They noted that Prime subscriptions continued to drive performance and that the company is still benefiting from several positives, such as its growing distribution footprint, moving closer to its customers, third-party sales, Amazon Web Services and much more.

They said that finally the Amazon story is coming to together with profitability. They added that the second quarter report demonstrates that the company is able to continue investing aggressively in the future while also “delivering material profits.” For example, they said CSOI margins surged 230 basis points year over year to reach 6.9%, a level the online retailer hasn’t enjoyed since the first quarter of 2010.

Amazon still investing heavily

Amazon management also said they will continue investing in future growth, which in the past has been a source of pain for investors, but now that all those investments are finally paying off, investors are ecstatic. Specifically, they plan to spend on two areas: video content for Prime and more fulfillment centers. They want to have the new fulfillment centers up and running in time for the holiday shopping season.

The JPMorgan team said that some might push back again on these investments. However, they believe that the bigger fulfillment center rollout of 18 locations in the third quarter versus six last year is a “bullish sign for future sales volume.” Further, they believe that this rapid expansion will help ensure that Amazon doesn’t have the same capacity problems it had in the fourth quarter of last year.

On content, the company plans to double its spending in the second half of the year compared to last year to reach about $2.5 billion. Wedbush analysts expect the higher profits from the company’s “high-growth, high-margin categories,” AWS and Fulfillment by Amazon to fully fund this significant increase in video content spending. They raised their price target for the company from $835 to $900 per share.

Investments make Morgan Stanley even more bullish

Morgan Stanley analysts have an $800 price target on Amazon and explained that the higher investments make them even bullish on the stock. They said investors often ask them whether they should short Amazon stock or wait to buy a dip because of some future period of heavy investment like what it has done in the past. It seems the question has been answered, as management said they’re entering another period of heavy investment, but investors are gobbling up Amazon shares in spite of that.

The Morgan Stanley team explained that the investments in more fulfillment centers are driven by demand, noting that Amazon’s third quarter revenue guide was 6% higher than their previous estimate. In other words, high volumes are driving the need for greater capacity.

They expect the company’s video content spending to result in faster growth in long-term Prime subscribership. They cite research which has shown that video drives global growth in Prime subscriptions. This is important because not only does video content drive a greater number of subscriptions, but the Morgan Stanley team estimates that Prime subscribers spend four times more than non-subscribers. As a result, more video content should grow the retail side of the business as well.

They also like the company’s push into India as they expect it to become the leader in that market.

Other price target increases for Amazon

Other firms also raised their price target for Amazon. Raymond James analysts upped their target from $770 to $900 per share, while CLSA raised their target from $770 to $890. Oppenheimer analysts upped their target to $941 per share from $930, while Deutsche Bank moves from $900 to an ultra-bullish $985, putting them at one of the highest price targets for Amazon on Wall Street. Pacific Crest analysts raised their target from $820 to $847 per share.

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