Solid quarter and solid guide out of Amazon. We were expecting that a business rate of change inflection would happen in 2Q and we got that. On the headlines, EBIT beat at $3.3bn vs $1.8bn expected on revenue 2% ahead of consensus. Trends were bullish on what we care about the most, which is the rate of change of revenue and gross profit. Revenue accelerated 100bps to +10%. Gross profit accelerated 380bps to +12%. Revenue upside was driven by 3p retail and physical stores. Advertising trends were also solid, slowing from 23% last Q to +18% this Q, but that was a 300bps acceleration on the 2 year in a challenging digital advertising market. AWS slowed 300bps to +33% against a tougher compare so a modest improvement on a 2 year basis. With 3P strong and AWS and Advertising outgrowing retail, gross margins expanded 200bps. The 2Q acceleration comes even with the company shifting Prime Day into 3Q. Management is guiding to another revenue acceleration with constant currency growth to go from 10% to around the high teens at the midpoint. We think AMZN is poised to deliver another revenue and gross profit acceleration in 3Q. The EBIT guide is the typical wide range, but with management talking about fixed cost leverage and lower fulfillment expense in the back half of around $1.5bn, we think the company is likely to come out towards the top end of that guide. Management flagged the typical increasing inflationary margin headwinds like elevated electricity, as well as employee expense, but the company is not backing off the investment cadence, with new investments targeted tech and labor to support AWS, digital content, and further fulfillment/transportation capacity.
The setup over the coming months is bullish as the model is accelerating, the question now becomes how long can AMZN keep up the accelerating trend. Compares ease in 4Q and 1Q23, and ecom should continue to gain share of the consumer wallet as the incremental growth in retail pivots back more towards ecommerce, but the macro and consumer environment is dicey. The 4Q Effect (when law of large numbers and more intense 4Q promo environment historically leads to less share gain and slowing revenue for AMZN) could rear its head again. The company has been reported to be considers doing a 2nd Fall Prime day. It makes a lot of sense in this consumer environment, tightening wallets means consumers need a deal to make discretionary purchases, and AMZN might need that to keep avoid deceleration in 4Q.
The fundamental TREND view for now is acceleration and net bullish. When we went bullish on AMZN in late 2021 it was on the view of the model inflection this Spring which we got, though Macro Quad4 has overpowered on the multiple and stock performance. This remains on out Best Idea Long list, but could be changing depending how we see 4Q shaping up as that draws near.
Here is our note from last quarter: AMZN | Inflection Coming, Quad4 Winning
