Why this analyst gives Amazon's earnings report a B+

Yahoo

31-07-2025

Amazon (AMZN) beat on earnings and revenue for the second quarter, but the stock is slipping in after-hours trading.
Wedbush Securities managing director of equity research Scott Devitt joins Market Domination to explain why Wall Street isn't wowed so far despite solid numbers.
To watch more expert insights and analysis on the latest market action, check out more Market Domination.
Amazon reporting a beat on earnings and revenue for the second quarter, while its key Amazon Web Services segment saw sales increase 17 and a half percent year over year. Here with a closer look is Wedbush Securities Managing Director of Equity Research, Scott Devitt. Scott, great to see you, sir, as always. So, Amazon reports, Scott, the just at least initial reaction in the after hours, Scott, we got the stock down about 4%. What do you make of the results?
Uh they're good. I mean, I give it a B+. I'll tell you what's good and and then why the stock's probably down. The retail business overperformed healthily, advertising was very strong. Um, operating margin beat by 13%. And then AWS, 17 and a half percent growth is healthy, but because of the overperformance of Google's cloud business, and then Azure, you know, whispers were kind of creeping up towards 18, 19. So, it's not a miss relative to analyst expectations, but relative to buy-side expectations, you know, going into number, maybe that was a little bit light. And I think that's why we're seeing the response in the stock.
So you think it's it's it's a compare and contrast story right now, Scott? They're just the bar got set high by Microsoft, by Alphabet.
Yes, like being the cleanup hitter and and having the first three batters hit home runs in front of you. The bar, you know, the bar is rising, and then you have to do something even better. And in the case of Amazon, it was a good AWS quarter. But if all you're going to focus on is AWS, and you look at the prior reporters, most notably Microsoft and and Google, their results for the three-month period were better, you know, relative to expectations. And so, there's nothing wrong here, but that's it's just an expectations, you know, miss in that regard for a stock that has been relatively strong in recent weeks.
Can I ask you in that big cloud fight, Scott, now that you've heard from all three, Microsoft, Alphabet, Amazon, what are Amazon's competitive advantages there?
So, like Azure has, you know, uh a lot of affiliation with OpenAI, ChatGPT, which helps the revenue of the business. Amazon's tied to Anthropic, which is smaller but starting to grow and will be a more significant contributor in the second half. I think the moat that Amazon has, which is the question that you had, is that they are the legacy leader in providing the services. So, as they layer AI into their product portfolio, as they've done, their customer base gravitates towards that, and they continue to grow. But it's a it's a battle. There's three very good companies, you know, going after these cloud revenue. And um Amazon had it kind of all to itself for many years. And now, you know, Azure looks like the um, you know, the the prettier the prettier girl at the prom, if you will, at the moment.
Let me ask you, Scott, about this other metric here. They they did project operating income in the current quarter. I I don't know if it fell short of your estimates. It does look like it did fall short of consensus. Um operating profit is going to be between 15 and a half to 20.5 billion. It looks like in the period ending in September. I'm just curious what you make of that data point, that metric, Scott. Is that is that perhaps worrying folks? Well, maybe they're turning on that spend spending spigot just a little too hard.
It shouldn't. I mean, they um the capex year to date is 57 billion. So they're probably going to ultimately do more than the 105 billion for the year. But the reason why that guide is not an issue is that Amazon's been exceeding the high end of their guidance for many consecutive quarters. In fact, it guided to the second quarter of, I think it was 13 billion to 17 and a half billion, and just did 19.2. So when you look at that guide in respect to what it just did relative to its prior guide, you conclude that estimates are just fine. It's just the way that Amazon guides. They put a low hurdle out there to beat. So, if that's driving, you know, some of the underperformance after hours, that's a non-issue. Um where I think the core focus is to the extent that you're matching, you know, stock price performance to where actually there was disappointment, it had to be in that AWS number.