Amazon disappoints with “in line” results and shares fall around 6% in the after-hours
For Brent Thill, from Jefferies, the numbers were not bad, but they were below what the market expected, amid a week of bad news among big techs.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM BLOOMBERG TELEVISION · 3 MIN
Amazon shares fell around 6% in the after-hours, after the earnings release, in a reaction that, according to Jefferies analyst Brent Thill, reflects expectations that were too high. In an interview with Bloomberg Television, he stated that the results were "not terrible", but that "it's not what anyone expected".
Thill, the bank's software and internet sector leader, described total revenue as in line with consensus. In his assessment, the advertising segment disappointed, and consumer retail was slightly below expectations, with 4.6 against 5.1 projected by the market. The analyst also said the company spent more on property and equipment than anticipated, according to the program description.
The result adds to a sequence of negative news in the technology sector in recent days, including earnings from Google and Amazon. For Thill, the market is experiencing a kind of "mini timeout", after having raised expectations too much.
Cloud grows, but below what investors want
The analyst highlighted that AWS, Amazon's cloud computing division, is doing well. The company indicated growth above 40% in the near future, a projection that, in his words, "is not difficult to give", since the quarter just ended was in the range of 37% to 39%. Thill also cited that AWS revenue beat estimates by about a percentage point, with total revenue growing 12%, in line with Wall Street.
The central point of the analysis is the mismatch between contracts and revenue. According to Thill, the contract portfolio (backlog) grew 154% in the previous quarter, but revenue is not keeping up with this pace. For him, cloud and artificial intelligence companies have difficulty converting the contracted backlog into revenue at the speed that investors desire. He noted that this doesn't mean they won't be able to do it over time.
The explanation, he said, involves possible problems in the supply chain: companies are unable to put capacity and data centers into operation quickly. Thill recalled that Microsoft also said there were delays and cited a partner with about $5 billion in commitments that could not be put into operation. According to him, this is the main concern of technology investors today, and Amazon's balance sheet did not provide evidence that dispels it.
Comparison with Microsoft and Google
Thill compared the business models of large cloud companies. In his assessment, Microsoft has a high-margin business that offsets other low-margin areas, while Amazon has a lower-margin retail business that finances the higher-margin cloud. The analyst said that Microsoft presents growth close to 50% with a margin of around 50% and strong expansion in free cash flow, while Amazon and Google are negative in this regard. He called the painting a "tale of two cities."
The presenter recalled that Microsoft's Azure is growing 48% and that Google Cloud has doubled, from a different base than Amazon, whose cloud remains slightly below the 40% level that many investors seek.
For investors, Thill's message is that the sector is in the initial phase of a major investment cycle and that the return will require patience. He considers Amazon shares to be cheap, at around 10 times the projected EBITDA, but recognizes that the market today demands higher execution from technology giants, which could continue to put pressure on the Nasdaq until these signs appear.
Automatically translated from Portuguese.
