A review of earnings from Amazon and Starbucks; Berkshire Hathaway's annual meeting is tomorrow

1) As longtime readers know, I've been bullish on Amazon (AMZN)...

Along with Alphabet (GOOGL) and Meta Platforms (META) – which I just discussed a week ago and yesterday, respectively – I've consistently liked Amazon's stock for years.

I named it as a core holding in the April 17, 2019 inaugural issue of my former newsletter Empire Investment Report at my old firm Empire Financial Research. Since then, through yesterday's close, it's up 104% versus 93% for the S&P 500 Index.

And now, Amazon reported strong first-quarter earnings yesterday after the market close...

(You can see the full earnings release here and investor slide presentation here... and this new Wall Street Journal article from yesterday has more details: Amazon Shares Drop on Tariff Concerns Despite Strong Quarter.)

Year over year ("YOY"), Amazon's net sales grew 10% (9% when adjusted for foreign exchange rates) to $156 billion and net income rose 64% to $17 billion – both beating expectations.

This chart from the investor presentation shows how profits have grown over the past year:

The highly profitable Amazon Web Services ("AWS") business led the way... though results slightly trailed expectations.

This next chart from the presentation shows AWS's net sales and operating income over the past five quarters:

Advertising revenue, which is nearly pure profit, grew 18% YOY to $13.9 billion.

It's simply astounding that one of the largest companies in the world – with $650 billion of trailing-12-month ("TTM") sales – is growing its top line at double-digit rates while also expanding margins. As such, that has led to booming profits.

So why has the stock been roughly flat this morning? Three reasons...

First, the low end of the guidance for revenue (a range of $159 billion to $164 billion) and operating income (a range of $13 billion to $17.5 billion) for the second quarter came in slightly below Wall Street's expectations.

Second, investors worry about the potential effect of tariffs and a trade war with China that could especially impact the millions of small sellers on Amazon.

Lastly, as with Microsoft (MSFT), Alphabet, and Meta, investors are worried about Amazon's surge in capital expenditures ("capex") – driven by the AI arms race.

In the first quarter, capex rose 68% from nearly $15 billion to $25 billion YOY. But the company said it only expects to sustain – not increase – this pace and will therefore spend a bit more than $100 billion this year.

Turning to valuation, Amazon currently has an enterprise value of nearly $2.1 trillion. With TTM sales of $650 billion, the stock is trading at 3.2 times revenue. And at a closing price yesterday at $190.20 and expected earnings of $6.30 per share this year, that means it's trading at 30.2 times price-to-current-year earnings.

Those are high (though not extreme) multiples... but Amazon is a juggernaut.

With the business now larger and more profitable, and with the stock down more than 13% this year, it's definitely more attractive than it was at the start of the year.

So if I owned the stock, it looks like a comfortable hold... And if I didn't, I would look to buy on any meaningful pullback.

2) Coffee giant Starbucks (SBUX) fell nearly 6% on Wednesday after reporting second-quarter earnings that fell 50% from a year ago on a 2.3% increase in revenues (and 1% decline in same-store sales) – all missing expectations.

Regular readers will recall that I've written quite a few times about the company since last year:

• A look at Chipotle Mexican Grill and Starbucks after the major corporate shake-up (August 14, 2024)
• Starbucks' many challenges (August 20, 2024)
• A look at earnings reports by Tesla, Starbucks, and Boeing (October 24, 2024)
• A look at Starbucks' and Boeing's earnings (January 29, 2025)
• Quick updates on Adobe, Peloton Interactive, Starbucks, Intel, and Southwest Airlines (March 17, 2025)

For more insight, I turn once again to my friend Lloyd Khaner of hedge fund Khaner Capital, who pitched Starbucks at my Value Investing Congress on October 19, 2009.

He rode the stock, then at $10.47 per share, to more than $100 per share before he exited a few years ago.

I asked him for his take on the company today, and as he replied to me in a private e-mail:

New CFO Cathy Smith has joined Starbucks and she has a wealth of experience, especially with turnarounds, which is exactly what Starbucks needs in a chief financial officer. She looks like an excellent choice.

It's very smart of Starbucks to cut back on capital expenditures and do store uplifts rather than complete renovations where they're not needed. It saves money and happens on a shorter timeframe.

Meanwhile, as he continued:

It's also smart to implement "area staffing" where employees can work at more than one store within an area, which is helping with staffing and flexibility.

The focus on improving product, quality, and speed of service is right on target.

The real key is their focus on becoming that "third place" again – outside of home and work where people can go and enjoy themselves – that they were years ago. That's what their customers really want. Starbucks has much more competition from other coffee places and bakeries than they used to, so they need to step up their game.

As for whether tariffs might raise coffee-bean prices, Lloyd said:

Coffee bean cost is only 10 to 15% of their total product and distribution cost, plus they have a hedging program so I don't think they'll need to raise prices this year.

I asked whether he has bought the stock yet, and he replied:

Not yet. I'm waiting for the operational turnaround to be further along. I want to see the changes and improvements in the stores: speed of service, uplifted stores, new food offerings, etc. And I'm waiting for those first experiential signs that their stores have their groove back. It will start showing up in the numbers early on as well.

Thank you, Lloyd!

I'll also add that at yesterday's closing price of $82.01 and estimated earnings per share of $2.52 this year and $3.12 next year, the stock isn't cheap – trading at 32.5 times this year's estimates and 26.3 times next year's.

3) It kills me to not be flying to Omaha, Nebraska today to attend the Berkshire Hathaway (BRK-B) annual meeting tomorrow – it's the first one I've missed since the 1990s.

I'll be there in spirit, though!

For those of my readers who will be there, I shared my tips on events to attend in Monday's e-mail.

And here's a WSJ article from earlier this week on how many international investors come to Omaha – featuring a picture of my old friend Lyle McIntosh, a local farmer who was smart enough to buy the stock decades ago: Buffett's 'Woodstock for Capitalists' Draws Admirers From Around the Globe:

And here's a new WSJ article, mostly focused on what Buffett might say during the meeting when asked about tariffs and selling down his massive position in Apple (AAPL): Warren Buffett, Mum So Far on the Trade War, Steps Up to the Mic. Excerpt:

When Warren Buffett takes the stage Saturday at Berkshire Hathaway's annual meeting, he will have the investing world's full attention – all the more so because he has avoided the spotlight lately.

Buffett, Berkshire's chairman and chief executive, has refrained from opining on President Trump's trade war or the economy's uncertain outlook, and shared few thoughts on Berkshire's most dramatic investment move of the past year: slashing its Apple stake but keeping the iPhone maker as its biggest stockholding as of December.

And as the article continues:

Now, with volatility shaking markets, many are preparing to parse Buffett's remarks at the shareholder meeting in Omaha, Neb., for clues about how he thinks the U.S. tariffs and other nations' responses will affect business and the economy as well as for insights about the path ahead for Berkshire itself.

"Everyone wants to hear his view on the tariffs," said Steven Check, chief investment officer of Check Capital Management and a longtime shareholder. "He's always been just the most credible voice out there, for decades now."

Lastly, someone on social platform X posted an interesting bit of history about investment-banking giant Lehman Brothers contacting Buffett about a lifeline in 2008. Buffett never got the fax they promised – and Lehman not long after filed for bankruptcy – the largest in U.S. history to this day.

The X post is below, and here's the related WSJ video it references and links to:

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.