Amazon: Analysts Revise Target Price, Earnings Are a Concern

Amazon (AMZN) shares are trading close to 4% in early-market today. The company announced its third-quarter results on Thursday.  Although Amazon beat the top-line estimates, its earnings were below analysts’ expectations.

The company’s revenue and earnings forecast for the December quarter was also below analysts’ estimates. As a result, several analysts have revised their 12-month target price for the stock.

BMO Capital analyst Daniel Salmon lowered Amazon’s target price from $2,280 to $2,000. He reiterated a “buy” rating for the stock.

Oppenheimer analyst Jason Helfstein maintained an “outperform” rating and lowered the target price from $2,100 to $2,040. He said that short-term erosion in the profit margins caused the price revision.

Analyst Aaron Kessler from Raymond James lowered Amazon’s target price to $2,020 from $2,080. He said that the company’s operating margin and revenue forecast in the December quarter caused the price cut.

Analyst Brian Nowak from Morgan Stanley (MS) claimed that Amazon’s ramp-up in one-day shipping was very impressive. He reiterated an “outperforming” rating on Amazon stock. However, he lowered the target price from $2,200 to $2,100. Nowak also lowered the EBIT outlook for 2020 by 10%.

Several other analysts including Wedbush, Benchmark, Credit Suisse, Mizuho Barclays, and Piper Jaffray reduced their target price for Amazon stock.

• Wedbush lowered its target price from $2,350 to $2,000 and maintained an “outperform” rating.
• Benchmark lowered its target price from $2,300 to $2,100 and maintained a “buy” rating.
• Credit Suisse lowered its target price from $2,400 to $2,100 and maintained an “outperform” rating.
• Mizuho lowered its target price from $2,200 to $2,150 and maintained a “buy” rating.
• Barclays lowered its target price from $2,180 to $2,000 and maintained an “overweight” rating.
• Piper Jaffray lowered its target price from $2,225 to $2,150 and maintained an “overweight” rating.

Analyst Doug Anmuth from J.P. Morgan (JPM) thinks that the pullback in Amazon stock gives investors an opportunity. Anmuth lowered the target price from $2,300 to $2,200 and reiterated an “overweight” rating.

Although several analysts have cut their target prices for Amazon, they maintain a bullish outlook. The company is investing heavily in one-day shipping to grow its Prime subscriber base. However, the focus on one-day shipping impacts the company’s profit margins. The company has wanted to expand its Prime subscriber base for some time. Notably, Amazon focused on growth and didn’t care about profit margins for the first decade and a half of its existence.

The bottom line got a massive boost after Amazon Web Services started to expand at scale. In the third quarter, Amazon’s Cloud revenues were $9 billion and in-line with the estimates. The operating profit in this business accounted for over 70% of the total operating profit.

Although Amazon’s sales forecast in the December quarter is below analysts’ expectations, a good holiday period might help the company beat its own estimates. The one-day shipping program will attract Prime subscribers. Currently, Amazon Prime already has 100 million subscribers.

The company is a billion-dollar giant. Amazon is growing its sales 20% year-over-year. The company achieved solid growth across its business segments. As a result, Amazon is a solid pick for long-term investors.