Amazon Surges as Wall Street Is Stunned by Near-Perfect Quarter

(Bloomberg) -- Amazon.com Inc. shares jumped to a record high Friday, up as much as 7.9 percent, with analysts applauding the company’s biggest expansion in profit margins in about two years.

Jefferies sees every major segment of the business contributing to the better-than-expected results, as well as big tailwinds coming behind the Amazon Web Services unit, Prime and the emerging advertising business. Analysts across the board were impressed with the financial results and Morgan Stanley sees Amazon’s e-commerce behavior modification and profit levers in the "on" position after announcing a $20 price increase for U.S. Prime subscribers.

The shares climbed 6.6 percent to $1,617.77 at 9:37 a.m. in New York. The previous intraday high was $1,617.54 on March 13.

Goldman Sachs, Heath Terry

"We are in the sweet spot between Amazon investment cycles where new fulfillment/data centers are driving accelerating revenue growth while incremental capacity utilization is driving margin expansion."

"Higher level, we still remain in the early stages of the shift of compute to the cloud and the transition of traditional retail online and, in our opinion, the market is underestimating the long-term financial benefit of both to Amazon."

Maintains buy rating and raises price target to $2,000 from $1,825

Jefferies, Brent Thill

"Amazon delivered impressive 1Q results -- total revenue 2 percent above consensus and the best operating margin we’ve seen since 2Q16 - with 2Q guidance also ahead of expectations."

"We see strong tailwinds across AWS, Prime and the emerging ad business helping fuel sustained outperformance for this runaway freight train."

Maintains buy, raises price target to $1,950 from $1,850

Loup Ventures, Gene Munster

Amazon’s results were highlighted by profitability that was twice the Street estimates.

"Recall that from time-to-time Amazon will flex its gross margins to remind investors of the model’s leverage potential. Going forward we expect margins to dip lower as the company continues its aggressive investment pace into fulfillment, lower AWS pricing and content."

"The company also announced a 25 percent increase in the price of a Prime membership. This should yield about $2 billion per year in incremental revenue that will most likely be reinvested in the business, and occasionally allow the company to flex its profit margin muscle once again"

Piper Jaffray, Michael Olson

"Early margin expansion surprise points to a large efficiency year."

"Management announced an increase in U.S. Prime subscription cost from $99 to $119 effective June 16, which we believe will drive $1.2 billion of incremental revenue."

"We continue to believe Amazon has substantial ‘hidden’ margin created by its heavy investments in un-monetized efforts."

Maintains overweight, raises price target to $1,850 from $1,650

Morgan Stanley, Brian Nowak

"Amazon’s results showcased its strong top-line momentum as 1Q revenue was roughly in line with us and the top-end of 2Q revenue guide was ~2 percent ($1 billion) higher than us."

"Amazon seems to be executing at an even higher level than they expect to as 1Q GAAP operating profit beat the high end of its guidance by $927 million, the biggest beat in over 7 years.”

Maintains overweight, raises price target to $1,700 from $1,550

Bank of America, Justin Post

"While certain 1Q revenues and margins clearly benefited from some accounting changes, the quarter was a nice reminder of the inherent margin power of the business."

"Other revenue (largely advertising) grew 139 percent y/y in 1Q, above our 96 percent estimate, and is a key positive given the likely high margin contribution."

Reiterates buy, raise price target to $1,840 from $1,650

Susquehanna, Shyam Patil

"We continue to remain positive on Amazon as we see the company as a long-term secular grower with leadership positions in three large growth markets — e-commerce, cloud and advertising… and expect numbers to move higher over time.”

"Catalysts include intra-quarter e-commerce data, company specific events (such as the AWS summits), AWS product announcements, pricing decisions and quarterly results."

Maintains positive, raises price target to $2,000 from $1,850

Loop Capital, Anthony Chukumba

"We are quite frankly flabbergasted” by Amazon’s results.

"Particularly impressed by Amazon’s performance given the fact 1Q is typically a seasonally weak profitability quarter for the company."

Reiterate buy and raises price target to $1,800 from $1,700

Baird, Colin Sebastian

"The significant acceleration in other revenues suggests Amazon’s advertising ambitions continue to ramp quickly, and is now large enough to drive upside in Amazon’s margin profile."

North American margin expansion was “a key positive, while international losses moderated despite significant investments in India."

"Amazon’s best-in-class large-cap growth story remains unchanged."

Maintains outperform, raises price target to $1,800 from $1,600

GBH Insights, Daniel Ives

"North America retail strength across the channel was the clear star of the show for Amazon as we believe the company is on pace to comprise roughly 50 percent of U.S. e-commerce spending by 2019."

"While near-term there is a major focus on significant investments around fulfillment, Prime, Echo/Alexa, AWS and integrating the Whole Foods acquisition into the fold, which could depress margins over the next few quarters, we believe this is ‘near term pain for long-term gain.’"

"Overall, this was a Picasso-like quarter for Amazon with no blemishes."

To contact the reporters on this story: Gregory Calderone in New York at gcalderone7@bloomberg.net, Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net.

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Courtney Dentch

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