Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Amazon AMZN reported first-quarter results that beat the high end of guidance on both the top and bottom lines. Revenue grew by 10% year over year in constant currency to $155.7 billion, while operating margin was 11.8% versus 10.7% a year ago. Currency hurt sales growth by $1.4 billion.
Why it matters: Results were generally good, with upside broadly on the top and bottom lines, which we think is positive in the face of looming tariffs. We see some prebuying behavior ahead of tariffs, which is worth monitoring if the tariff situation persists beyond the second quarter.
Amazon produced upside to revenue in each of segments relative to our model except for third-party sellers, which was slightly light. Consumer buying behavior has not really changed in the face of tariffs, even through April. Advertising was impressive and helped buoy overall results.While there could be some mild disappointment around solid AWS results given Azure’s very strong results on April 30, we note AWS faces the same capacity constraints and still produced upside to our estimate in the first quarter. Artificial intelligence workloads are growing in excess of 100% year over year on AWS.
The bottom line: We maintain our fair value estimate of $240 per share as we see good results in conjunction with mixed guidance and we see shares as attractive.
Coming up: Overall guidance is mixed, with revenue solid and profitability light relative to our model. Satellite launch costs for Project Kuiper will likely pressure margins for a couple quarters, while new AWS capacity coming online later this year will have a similar impact.
We do not think these will have a major impact on Amazon’s long-term profitability, but we have already been modeling relatively flat margins for 2025, so have not made meaningful changes.Considering the tariff situation, we see guidance as solid. Second-quarter guidance includes revenue of $159 billion-$164 billion, with operating income of $13.0 billion-$17.5 billion.
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