Wedbush analyst Michael Pachter was impressed with Amazon's (NASDAQ:AMZN) quarterly results and repeated an 'outperform' rating.
Revenue for the three months was $35.7bn against the broker's estimate of $35.97bn and consensus of $35.30bn, and the online retailer's guidance of between $33.25 and 35.75bn.
Operating income came in at $1.01bn against a Wedbush estimate of $1.06bn and consensus of $896 million, and guidance of between $250 and $900mln, driven by gross margin, which was above the broker's estimates.
Taking market share...
The company’s retail unit has been taking market share away from major department stores as more consumers turn to internet commerce.
The Amazon Web Services arm reported a 42% increase in sales to US$3.66bn, as it pulled in more small businesses and large enterprises to its cloud platform.
The group forecast second quarter sales of between US$35.25bn and US$37.75bn, compared to analysts’ expectations of US$37bn.
Analyst Pachter said: "Amazon appears intent upon growing annual profits (with some quarterly volatility), which we expect to continue as the company invests in growth.
"Amazon Web Services (AWS), Fulfillment by Amazon (FBA), and advertising should continue to drive growth and at high margin.
Broker expects gross and operating margins to continue expanding...
"As a result, we expect gross and operating margins to continue expanding rapidly.
"We expect international Prime membership growth to drive overall retail revenue, particularly as Amazon is rapidly expanding in India.
“Operating margin expansion will likely be tempered somewhat by increased spending on video content, fulfillment, and international expansion; however, the trajectory is clear and the company's investment strategy purposeful."
The broker lowered its 2017 estimate for revenue to $168.1 bn from $168.6bn and raised its estimates for operating income to $5.8bnfrom $5.3bn, reflecting lower AWS revenue offset by better gross margin as FBA growth continues unabated.
The Wedbush target price is $1,250, against a current price of US$928.10.