ii view: can AI tools help Amazon to keep delivering?

Second-quarter results to 30 June 

• Net sales up by 11% to $134.4 billion (£106.2 billion) year-over-year
• Net income of $6.7 billion (£5.3 billion), up from a loss of $2 billion a year ago 
• Earnings per share of $0.65, up from a loss of $0.20

Guidance:

• Expects Q3 sales of between $138 billion and $143 billion, giving year-over-year growth of 9% to 13%

Chief executive Andy Jassy said: “It was another strong quarter of progress for Amazon. We continued lowering our cost to serve in our fulfilment network, while also providing Prime customers with the fastest delivery speeds we’ve ever recorded.

“Our Amazon Web Services(AWS) growth stabilised as customers started shifting from cost optimisation to new workload deployment, and AWS has continued to add to its meaningful leadership position in the cloud with a slew of generative AI releases that make it much easier and more cost-effective for companies to train and run models, customise Large Language Models to build generative AI applications, and write code much more efficiently.”

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ii round-up:

Started in 1994, Amazon (NASDAQ:AMZN) today is focused on e-commerce, cloud computing, digital media streaming, online advertising, and artificial intelligence.

For a round-up of these latest results announced on 3 August, please click here.

ii view:

Its online store generates the biggest slug of sales at around 43%, followed by third-party seller services at around 23%. Its cloud business AWS, competing against the likes of Microsoft Corp (NASDAQ:MSFT), Google (Alphabet Inc Class A (NASDAQ:GOOGL)) and International Business Machines Corp (NYSE:IBM), comes next at 15%, followed by both advertising and subscription services at around 7% each, and its physical stores make up the balance at 4%. Geographically, the US remains dominant with almost 70% of sales, with Germany, the UK and Japan all notable at around 5% to 6% and other countries accounting for the rest. 

For investors, the challenging economic backdrop, including heightened interest rates, now overshadows both consumer and corporate spending. Competition in arenas such as streaming from the likes of Netflix Inc (NASDAQ:NFLX) and Disney (NYSE:DIS) is intense, and costs generally for businesses remain elevated, while government concerns regarding monopolistic powers persist. 

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More favourably, focusing on costs given an arguable overspend during the pandemic now looks to be shining through. Its core retail business is today accompanied by significant other businesses with its cloud computing AWS segment now a major global force in its own right. The potential of its artificial intelligence or AI investments, now warrants consideration, while a price to net asset value comfortably below the three-year average suggests the shares now offer better value.  

On balance, and despite reasons for caution, an analyst consensus estimate of fair value at over $160 per share should keep longer-term fans patient. 

Positives

• Dominant position in online retailing
• Pushing AI initiatives and investments

Negatives

• The threat of increased regulation across many of its markets
• Currency movements can hinder performance

The average rating of stock market analysts:

Buy