The major indices are mixed and flat at midday following an active and volatile morning session on Wall Street, with earnings still being at the center of attention. Despite Eli Lilly's (LLY) mixed quarterly numbers the firm's shares soared to a new all-time high post-earnings, giving a boost to the healthcare sector. The largest video game producers, on the other hand, were hit by a perfect storm of negative catalysts this morning, as Take-Two's (TTWO) disappointing guidance, a lawsuit against Activision-Blizzard (ATVI), and the fact that Chinese authorities called online games "digital opium" all weighed heavily on the communication services sector.
Stock Pick Summary:
Today, we add one of our big guns, AMZN, for the 9th time in our portfolio. All our previous 8 positions are profitable with the first one at north of 2500% profit. The stock is much more expensive today, but we still see a run way ahead specially after the post earnings dip. It reported results that disappointed some who may not have anticipated a retreat from the pandemic-fueled growth rates seen previously. Q2 2021 top-line revenue came in at $113B compared to Q1 2021 $108.5B, a 4% quarterly increase. Revenue was up 27% compared to Q2 2020. EBITDA for Q2 2021 was up a whopping 36% over the same period in 2020, however was down 14% from Q1 2021. Despite expected headwinds from the reopening themes and tougher comps, we want to look ahead for long term rewards.
We want to focus on 2 key growth elements:
AWS - While AWS accounted for only 13.1% of Q2'21 revenue, the segment was the main operating profit driver for the company as it accounted for 54.4% of Q2'21 total operating profits. Importantly, AWS's operating margins have also been largely consistent over time, and therefore investors could continue to depend on this vital segment to continue powering operating profits for the company. AWS is operating in a fast-growing market where it's the current market leader, and there is ample space and opportunities for the leading players to continue expanding. The public cloud market is expected to continue growing quickly from $270B in 2020 to $397B by 2022.
Ad Revenue - Amazon's digital ad revenue segment has been the company's fastest-growing segment for the last 3 years. In Q2'21, this segment continued its rapid run as ad revenue grew by 87.4% YoY and 14.6% QoQ. Within this segment, Amazon derives about 88% of its business from the e-commerce marketplace. The digital ad market is extremely lucrative. In the US alone, the digital ad market is expected to continue growing fast from $152.25B in 2020 to $278.53B by 2024. So there are a lot of reasons to expect Amazon to continue growing rapidly within this huge market and capture even more market share.
With the US e-commerce penetration rate still in the low-teens, we think Amazon's e-commerce growth has plentiful years of out performance ahead and hence we are happy to continue building our position in it.
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