Evercore ISI Senior Managing Director & Head of Internet Research Mark Mahaney joined Yahoo Finance Live to break down Amazon’s blowout quarterly earnings.

Video Transcript

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SEANA SMITH: We have big blowout numbers from a number of tech and consumer giants this week. Amazon was one of those names that reported. Apple and Facebook we got earlier this week. Well, let’s talk about Amazon, because shares hitting an all-time high today. They reported sales soaring 44{2f36692215c92488191f15c49f485bc8da437d4cca01014075d40c79880301cc} during their latest quarter. So we want to bring in Mark Mahaney. He’s Evercore’s senior managing director and head of internet research. Mark, it’s great to have you back on Yahoo Finance. I know you raised your price target this morning to 4,500 on the stock, up from 4,000. What’s going to keep this momentum in Amazon going?

MARK MAHANEY: Well, if they can continue to show fundamentals like this. I think the most interesting thing, really, wasn’t the March quarter. We’ve had so many positive earnings releases from– you mentioned them– Facebook, Google, even eBay and Shopify. You knew that the March quarter was going to be strong for Amazon.

The question was the June quarter guide. Comps are now starting to get tough. And can Amazon can sustain premium revenue growth rates? Call it 20{2f36692215c92488191f15c49f485bc8da437d4cca01014075d40c79880301cc} plus off of those comps. Their guidance indicated that they could. And so we’re going to track that for the next couple of quarters. But if this company can sustain and convince people that they can sustain premium revenue growth despite those tough comps, that’s what takes the stock higher.

JARED BLIKRE: Yeah, and those earnings reports were simply astounding. But you know what I want to talk about is that possible split. There was a rumor a couple of days ago that they might be executing a split. And then memories of Apple swirl around, and are they going to join the Dow? Probably have to be a 10 for one or one for 10, something like that. What could that mean for the company?

MARK MAHANEY: I actually don’t think it means that much, these stock splits. I know Amazon’s done it in the past. I can’t remember. It’s been a while since they split their stock before. And maybe you remember, Jared, off the top of your head. I’m sorry, I just don’t. And as a fundamental analyst, I just don’t think it really matters that much if the companies split their stock. I get that sometimes it’s a trading catalyst, but it doesn’t impact fundamentals.

I think there’s a lot of other things going on around the company. They’re moving more and more into international markets. Their ad revenue growth is explosive. AWS growth in terms of dollars grew materially faster than Azure and Google Cloud. And I think there’s been some concerns that AWS could be losing market share. They kind of rebuff that pretty clearly in the quarter. So I think there’s a lot of kind of very interesting things that are going on around the company right now. And they have been. And the advantage for Amazon shareholders is for good or for bad, they’ve been beneficiaries of the COVID crisis.

SEANA SMITH: Mark, another thing that investors have been focused on is Prime Day and also Prime membership. So Amazon saying that they were shifting their Prime Day to the current quarter. I’m curious to, one, just to get your thoughts on the timing of that, and then, two, what do you see as the growth trajectory? What does that look like for Amazon Prime?

MARK MAHANEY: Well, Amazon Prime is maybe the single best customer retention loyalty program ever created. I’m exaggerating a little bit, but probably not by much. They now have over 200 million Amazon Prime customers globally, probably 85 million in the US. And our guess is that that number can probably double over the next 10 years. They can get to 400 million Amazon Prime customers. And what we know from extensive surveying is that those customers shop more frequently with Amazon. They purchase more. They have higher spend intentions. They’re just, as you would expect, more loyal, bigger spenders. And it’s kind of a great acquisition and retention tool for Amazon.

And they also have pricing power. I think they’ve raised price on-prem twice. I would imagine every five years or so, you should expect Prime pricing to go up. They moved Prime Day– you’re right– into the June quarter last year. They had to push it all the way back into the December quarter. It does add $4 to $5 billion in revenue for the company. So it does help– it did help them with their June quarter outlook. And it will set up tougher comps for the September quarter outlook. It’s a key event that I think they only introduced about four years ago, four or five years ago, and has been the big selling event for them. So it definitely will help them in the June quarter.

JARED BLIKRE: I got to tell you, I had to look up that stock split question. And the last time Amazon stock split was 1999. They did a bunch, three almost in a row there. But I’m not going to make you answer another question about that. I want to talk about AWS. That has just been an absolute powerhouse over the years, funding basically the entire operation for such a long time. Now that we have Andy Jassy pretty much the chosen successor of Jeff Bezos, what does that picture look like going forward for that segment?

MARK MAHANEY: Oh, for that segment? So, one, let me hit on two things. One is, I don’t think we’re going to see a major change in the way that Amazon is run. There were two logical candidates to replace Bezos as the CEO– Jeff Wilke or Andy Jassy, the head of the retail business or the head of AWS. And Jassy’s been with that company for, I think, 18, 19 years now. And so I would imagine that you’ll see no change.

In terms of AWS and how it’s operated, that maybe is a little bit more of a wild card. I think that just has so much momentum now that I don’t see why somebody would come in. And I don’t think that there’s a need for a strategy or an operational overhaul at AWS. So my guess is that we’re not going to see much of a change there. We’ve had this revenue growth acceleration this quarter.

And my guess is that that’s sustainable because I think there are a couple of permanent pull-forwards from COVID. And one of them is cloud computing. You just had a lot of enterprises that decided there’s no longer a need to wait. We need to adopt cloud computing now. And I think Amazon benefits from that. But by the way, so does Microsoft Azure and so does Google Cloud.

SEANA SMITH: Mark Mahaney, always great to have you on here at Yahoo Finance. Evercore’s senior managing director and head of internet research. We look forward to having you back soon.