Amazon.com Inc (NASDAQ: AMZN) reported weaker than expected sales for its fiscal second-quarter last night that fuelled a sell-off in the stock. Shares of the company opened about 7% down on Friday morning.
Gene Munster’s comments on CNBC’s “Worldwide Exchange”
According to Loup Ventures’ Gene Munster, Amazon could have had better margins, but a 13% growth in retail despite incredibly difficult comp shows that the business itself is stronger than ever. From the stock perspective, however, the story is a bit different, Munster said on CNBC’s “Worldwide Exchange”.
“The question on AMZN is what is its true growth rate? It is probably going to moderate to 15% next year, as per their guidance. This quarter, the growth rate dropped to 18% from 45%. If it drops further to 15% next year, it might push investors into stepping back and do a re-rating of the multiple, and you’re seeing some of that today.”
Munster acknowledged that Amazon Web Services and the advertising segment is expanding quickly and will represent much more of the tech titan in the future. For now, however, retail is still the largest unit, which is why a slowdown in this business disappoints investors despite growth in other segments. Amazon’s eCommerce sales climbed by 22% only in Q2 despite a boost from its annual Prime Day.
“It’s kind of like Apple Inc. They can have services do great, but unless the iPhone’s doing great, investors aren’t satisfied. Amazon is a tech company, there’s no doubt. But the margins aren’t tech like. Its operating margins stand at around 8% versus 30% for Google and Apple and 42% for Facebook,” Munster added.
What Munster thinks Amazon needs to boost its stock
For the stock to make its next move up, the Loup Ventures’ founder and managing partner said, Amazon needs to work on its margins, which as per the CFO, are unlikely to improve anytime soon since the tech giant is on an “investment mode”.
Munster sees an opportunity in automation robotics for Amazon to cut human costs and improve its margins in the upcoming years.
The post Munster explains why investors were unimpressed of Amazon’s Q2 results appeared first on Invezz.
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Wajeeh Khan
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