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TheStreet
Analysts rethink Amazon stock price targets after earnings
By Silin Chen,
2024-08-07
Amazon held its biggest Prime Day shopping event in July, but its stock price plummeted nearly 9% after its second-quarter earnings report on August 1. This marked the biggest one-day decline since April 2022, Bloomberg data shows.
The e-commerce giant posted earnings of $1.26 per share, topping the $1.03 forecast. Revenue of $147.98 billion was up 10% from a year ago but missed the expected $148.68 billion.
Amazon now projects its revenue for the third quarter to range between $154 billion and $158.5 billion, slightly below the consensus estimate of $158.24 billion.
The company said consumers are careful about the money they spend and “continue to trade down on price,” indicating that the economy remains under strain despite easing inflation. Amazon expects that the bargain-searching trend will continue in the September quarter.
Amazon stock is up 9.7% year to date, while the S&P 500 is up 11.8%.
The company's mixed results and investors' reactions have prompted analysts to reconsider their stock price targets.
Shoppers are cutting back on discretionary purchases.
Amazon’s major retail and subscription business, the North American and International segments, saw a slowdown in year-over-year revenue growth during the second quarter. Sales in the North American segment increased by 9% to $90 billion, while International segment sales rose by 7% to $31.7 billion. These growth rates were down from the previous year’s 11% and 10%, respectively.
The company said shoppers are cutting back on discretionary purchases, such as computers and electronics, which are growing at a slower pace compared to a stronger economy, according to CEO Andy Jassy.
"Consumers being careful with their spend, trading down, looking for lower ASP products, looking for deals. That continued into Q2, and we expect it to continue into Q3," said Amazon CFO Brian Olsavsky in the earnings call.
The AWS segment sales increased 19% year over year, compared with a 12% growth a year earlier. While investors believe in the segment's growth and prospects, the segment's $26.3 billion revenue represented just 18% of the company's total.
AWS is Amazon’s cloud computing service, built to help customers—startups, large enterprises, and government agencies—lower IT costs and operate more efficiently. According to estimates from Synergy Research Group, AWS is now the worldwide leader in cloud services, with a market share of 32% in the second quarter of 2024.
But Amazon’s cloud business faces increasing competition from rivals.
Microsoft is closing the gap, with Azure achieving record market shares of 25% in Q1 2024 and 23% in Q2. Google’s market share reached 12% in Q2 2024, up from 11% a quarter earlier.
Morgan Stanley lowered Amazon's price target to $210 from $240 on August 6 and kept an Overweight rating. The analyst also removed Amazon stock from the "Top Pick" list due to the retail giant’s "disappointing and multi-faceted" Q2 earnings.
The analyst admits to having been wrong about how quickly Amazon’s retail profits would improve, explaining that a shift towards lower-priced items and a slower-than-expected ramp in high-margin advertising and cost-to-serve improvements is affecting profits more than anticipated.
Morgan Stanley also reduced Amazon's EBIT and free cash flow forecasts for 2025 by 12% and 9%, respectively, according to the analyst.
Analysts from TD Cowen and Wells Fargo also lowered their price targets on Amazon to $230 from $245 and $232 from $239, respectively. They acknowledged AWS's growth but raised concerns over the near term due to weak Q2 revenue and Q3 operating guidance.
Barclays raised Amazon's stock price target to $235 from $220, keeping an Overweight rating. The firm said that what Amazon struggled with this earnings season was the same issue affecting big tech companies: an extremely high bar to clear and investors fearing the artificial intelligence capex and depreciation cycle ahead.
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