Amazon (NASDAQ: AMZN) posted its Q2 2021 earnings on July 29. Its business results were once again excellent, but its share price has since been pulling back.
Amazon Q2 earnings financial highlights
During Q2, profits amounted to $7.78bn ($15.12 per share), up 48.4% year-over-year (YoY) and revenue jumped 27% to $113.08bn.
Meanwhile, operating income is up 32% YoY, but free cash flow fell 62% YoY for the trailing twelve months (TTM).
Net sales for the quarter are up 27% YoY, and Amazon’s Prime Day event was again very successful.
Prime membership and prime member purchase levels have accelerated during the past 18 months – the event must play a large part in driving this demand.
But taking Prime Day out of the equation, its YoY percentage growth rate has declined to the mid-teens.
However, its two-year compounded annual growth rate (CAGR) remains between 25% and 30%, which is impressive.
Amazon Web Services (AWS)
Amazon Web Services (AWS) displays strong revenues with net sales up 37% YoY and operating income up 25% YoY.
But there was slippage in AWS margins quarter-over-quarter. CFO Brian Olsavsky puts that down to cost pressures, including improving server efficiency and infrastructure costs, along with pricing pressure from decreases in longer-term contracts. AWS also incurred costs from foreign exchange (FX).
Brian Olsavsky, Amazon CFO, said:
“Even at 28.3%, it’s a strong margin for this business. We know it’s going to bounce around as we invest, but also work very hard to scale our businesses and efficiently run our assets.”
AWS client base includes enterprises, governments, educational and research institutions, and start-up and digital-native customers. Each of these areas displays strong growth.
In the first six months of 2021, AWS brought in a net income of $15.8bn – that’s a whopping $87.7m a day!
AMZN has a $1.6T market cap; total debt is $123bn, while cash and equivalents are $89bn. Meanwhile, the short interest on this stock is 0.77%.
Amazon has a forward P/E of 59, and it doesn’t offer shareholders a dividend.
AMZN displays an estimated long-term growth rate of 35.8%, and its 2021 consensus average EPS forecast is $53.26.
Analyst consensus on Amazon stock is a 12-month average share price target of $4,170. That gives a potential 27% upside.
Meanwhile, AMZN stock appears in 294 exchange-traded funds (ETFs).
The company also gets its fair share of negative press.
As the physical retail environment flounders and Amazon’s profits soar, this is inevitable. But Amazon is also a major employer and creating opportunities for entrepreneurial-minded individuals to build their own e-commerce businesses on the back of its success.
Check out our previous analysis for a deeper overview: Is Amazon a good investment?
It’s not unusual for well-established companies to see their share prices fluctuate, and Amazon is no different.
Nevertheless, it is facing increasing regulatory scrutiny.
At the end of July, a filing with the US Securities and Exchange Commission (SEC) showed European regulators fined Amazon €746m ($886m) for data protection violations. Amazon is going to fight the ruling.
Amazon is clearly leading across several business domains, and its cloud computing arm has plenty of room to grow.
Although no stock is risk-free, Amazon seems like a fairly safe investment in the grand scheme of things.