Citi Cuts Estimates For Amazon's AWS, Lowers Target To $960

Amazon.com, Inc. AMZN's AWS segment announced a reduction in storage prices for both S3 and Glacier with effect from December 1. This follows the EC2 Compute price cut announced on November 14. “Importantly, we do not view these moves as an indication of competitive pressures or a threat to long-term margin outlook for AWS,” Citi’s Mark May said in a report.

May maintains a Buy rating on Amazon, while reducing the price target from $965 to $960.

Impact Of Price Cuts

AWS indicated a EC2 price reduction of up to 10 percent in the United States and European Union. May estimated the S3 price cut at ~23 percent. He noted, “Together, we believe these mark the largest single price reductions for Amazon’s core services since April 2014.”

The analyst added, however, that since the price cuts were significantly less than the estimated ~50 percent for storage and ~40 percent for compute at that time, “the reductions will not cause the same growth and margin degradation that was seen in 2014.”

However, since these are core offerings by Amazon, there would likely be a meaningful impact on AWS’s reported metrics. The AWS revenue and CSOI estimates for 2017 have been reduce by 3 percent and 9 percent, respectively.

The EPS estimates for FY 2016, 2017 and 2018 have been reduced from $4.76 to $4.57, from $7.98 to $7.24 and from $12.28 to $11.51, respectively.

At last check in Monday's pre-market session, Amazon was down 0.54 percent at $776.