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​Amazon's shares will reach $550 by 10.28.2015
27 september 2015

We remain upbeat about the outlook for Amazon.com (AMZN), the world’s largest online retailer. The company continues to reporrt impressive financial results. It recently released a Q2 financial statement, showing that its revenue grew 2.1% q-o-q and 19.9% y-o-y to USD 23.19 bn, above the median consensus of USD 22.31 bn. Revenue surged 27% y-o-y, excluding negative impact of currency rate fluctuations. Both the product and services segments posted gains during the reporting period (74% and 26%, respectively). US operations accounted for 59% of total revenue, as gains from these operations increased 2.9% q-o-q and 25.5% y-o-y. The international segment accounted for 33% of the top line, as it shrank 2.3% q-o-q and rose 3.1% y-o-y (22% y-o-y, excluding currency rate fluctuations).

Notably, the company for the first time disclosed the indicators of its new segment, Amazon Web Services (AWS), which provides cloud services. Its revenue jumped 16.5% q-o-q and 81.5% y-o-y, while its share in total revenue reached 8%. The management of Amazon announced that AWS currently operates in 11 regions of the world, while it will soon enter India, its 12th market. The number of the platform’s subscribers is growing faster than revenues, and the management believes prices will go up in this segment during the second half of the year.

The gross profit margin of Amazon advanced 2.38 pps q-o-q and 3.89 pps y-o-y to 34.6% in the second quarter of this year. Net expenses on delivery of goods and services contracted 4.4% of sales compared to 4.8% in the previous quarter and 5% a year earlier. Operating profit totaled USD 464 mn against USD 255 mn of profit in the first quarter and USD 15 mn of loss in the second quarter of 2014. Operating margin climbed 0.88 pps q-o-q and 2.08 pps y-o-y. Quarterly EPS stood at 19 cents, while Wall Street analysts had expected a loss of 15 cents.

Amazon is optimistic about the future. According to its guidance for the third quarter of 2015, earnings will be in the range from USD 23.3 bn to USD 25.5 bn (up 5.4% q-o-q and 18.6% y-o-y from the midrange) compared to the median consensus of USD 23.8 bn. Operating profit, including bonuses for the management represented by shares and amortization of intangible assets equal to USD 580 mn, is expected to total from -USD 480 mn to USD 70 mn.

We have raised the price target of the company to USD 580 and continue to recommend it as a lucrative mid-term investment. Theshort-termtechnicaltargetisUSD 550.

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​Amazon's shares will reach $550 by 10.28.2015

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