Shares of tech giant Amazon (AMZN) have fallen 0.5% today and are currently trading at $1,785. According to MarketWatch, investment bank Morgan Stanley lowered AMZN’s 12-month price target from $2,300 to $2,200.
Morgan Stanley analyst Brian Nowak reiterated an “overweight” rating on Amazon. The report states that although Nowak expects AMZN’s one-day shipping program to drive demand and sales higher, the “lower average order values” could hurt its profit margins.
Nowak estimated the company’s one-day shipping costs per unit to be 2.2x higher than its average shipping cost per unit. Further, fulfillment center costs for one-day shipping are also twice as high while the AOVs (or average order values) are 65% lower.
Amazon has underperformed the S&P 500 in 2019
Amazon stock is up 16% year-to-date. Comparatively, the Dow Jones Industrial Average Index has gained 15.5% in 2019. The S&P 500 ETF is up about 20%. Among the other FAANG stocks, Facebook (FB), Apple (AAPL), Netflix (NFLX), and Google (GOOGL) have returned 37.7%, 39.5%, -1.5%, and 17.2%, respectively, in 2019.
AMZN has experienced volatility in the last 18 months, driven by a weak macro economy, ongoing trade wars, and big tech privacy concerns. However, its stock has gained 52.7% since the start of 2019 and is up by an impressive 452% in the last five years.
Growth story remains intact
Amazon stock is trading 12.2% below its 52-week high. The stock peaked toward the end of September 2018 and has experienced a pullback from record highs in the last 12 months. However, the company’s growth story remains intact.
Amazon continues to lead the public cloud market despite growing competition from Alibaba, Microsoft, and Google. The company is also the third-largest online advertising platform behind Google and Facebook. These two businesses are high-margin and high-growth segments that could drive the company’s sales higher going forward.
Analysts expect Amazon’s sales to rise 19.8% to $279 billion in 2019 and 18.9% to $331.64 billion in 2020. The company’s earnings per share are estimated to rise 17.1% in 2019, 40.8% in 2020, and at an annual rate of 83% in the next five years.
Analysts have a 12-month average target price of $2,303 for Amazon stock. This target price indicates an upside potential of 29% from the current price.