Amazon.com Inc. shares jumped to a record high Friday, up as much as 7.9%, with analysts applauding the company’s biggest expansion in profit margins in about two years.
The company generated $51.04 billion in revenue in Q1 2018, up 42.9% from $35.71 billion a year earlier. Its net income also more than doubled to $1.63 billion from $724 million. Goods sold in Amazon’s marketplace accounted for 52% of units sold, up from 50% in Q1 2017.
Global investment banking firm Jefferies Group LLC says it 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% to $1,617.77 at 9:37 a.m. in New York. The previous intraday high was $1,617.54 on March 13.
To fuel further revenue growth, meantime, Amazon is more than doubling its line of credit to $7 billion to cover such costs as building data centers and expanding internationally in Europe and Asia.
The line of credit, which was previously $3 billion, is led by Bank of America Corp. and HSBC Holdings Plc. Amazon opened the credit line in 2016. The new terms extend the agreement until April 27, 2021.
The new agreement is a sign of how Amazon is positioning itself for more spending even after it said Thursday it will boost the yearly price of Prime memberships 20% to $119. That will generate an additional $1.5 billion or so in annual revenue. The company has been making big investments in India and the U.S., where it’s engaged in a price war with Walmart Inc. as it seeks to sell more groceries and household goods.
Following are comments on Amazon’s Q1 performance from individual stock analysts:
Heath Terry, Goldman Sachs: “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
Brent Thill, Jefferies: “Amazon delivered impressive Q1 results—total revenue 2% above consensus and the best operating margin we’ve seen since Q2 2016—with Q2 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
Gene Munster, Loup Ventures: 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% 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”
Michael Olson, Piper Jaffray: “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
Brian Nowak, Morgan Stanley
“Amazon’s results showcased its strong top-line momentum as Q1 revenue was roughly in line with us and the top-end of Q2 revenue guide was about 2% ($1 billion) higher than us.”
“Amazon seems to be executing at an even higher level than they expect to as Q1 GAAP operating profit beat the high end of its guidance by $927 million, the biggest beat in over seven years.”
Maintains overweight, raises price target to $1,700 from $1,550
Justin Post, Bank of America: “While certain Q1 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% year over year in Q1, above our 96% estimate, and is a key positive given the likely high margin contribution.”
Reiterates buy, raise price target to $1,840 from $1,650
Shyam Patil, Susquehanna: “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
Anthony Chukumba, Loop Capital: “We are quite frankly flabbergasted” by Amazon’s results.
“Particularly impressed by Amazon’s performance given the fact Q1 is typically a seasonally weak profitability quarter for the company.”
Reiterate buy and raises price target to $1,800 from $1,700
Colin Sebastian, Robert W. Baird & Co.: “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
Daniel Ives, GBH Insights: “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% 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.”
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