Amazon Earnings: AWS Stabilizing, Margins Strengthening, and E-Commerce Demand Improving

Wide-moat Amazon reported strong second-quarter results and provided better-than-expected guidance for the third quarter. E-commerce and advertising drove most of the upside, but Amazon Web Services revenue stabilized and came in better than feared with a more upbeat outlook. Operational improvements continue apace and propelled the firm to its strongest operating margin in the last two years. We still envision healthy long-term growth driven by e-commerce proliferation, AWS, and advertising and believe the biggest near-term issue is the health of the consumer rather than business spending on the cloud. After increasing our growth and profitability assumptions based on results and guidance, we are increasing our fair value estimate to $150 per share from $137 and see modest upside for the stock.