* Robust margin improvement is leading us to boost our price target on Amazon to $220 from $220, reiterating our One rating
We are boosting our price target on One-rated Amazon (AMZN) to $220 from $200 following the company’s March quarter results and favorable prospects ahead for margins and EPS.
While there were many positives in Amazon’s March quarter results, including the reacceleration of sales growth at Amazon Web Services, the company showed further progress on driving costs out of its overall business as its operating margin for the quarter cracked double digits for the first time.
Margins at all three reportable segments posted meaningful improvement compared to year-ago levels leading Amazon’s overall operating margin to hit 10.7%, marking the first double-digit print for that metric.
Our thinking is we are seeing the benefits of cumulative efforts to drive costs out of Amazon’s business segments. While Amazon Web Services continues to be the largest profit generator among them, the progress in the North America retail business has been meaningful. And the company’s International segment, which has long been a drag on overall profits, turned positive in the March quarter. Another testament that management is focused on growing a profitable business.
That focus is allowing Amazon to continue to invest to grow, with management noting the $14 billion in capital spending during the quarter will be the “low point” for the year as Amazon looks to invest further to build out its AI offerings.
This follows similar commentary from Microsoft (MSFT) , Alphabet (GOOGL), and Meta (META) , all of which bodes very well for our positions in Nvidia undefined and Marvell (MRVL) .
We continue to see Amazon well-positioned as shoppers reembrace digital shopping, especially as they contend with persistent inflation. AI and cloud adoption should remain a tailwind for Amazon Web Services, and we continue to see favorable growth ahead for Amazon’s subscription and advertising offerings.
Both of those businesses grew double digits in the March quarter. New subscription offerings, including for grocery, and the adoption of ads in Prime Video point to further gains ahead.
At the time of publication, TheStreet Pro Portfolio was long AMZN, MSFT, NVDA, MRVL.