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Here's How Wall Street Investors, Analysts Felt About Amazon's Q4 Earnings

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Here's How Wall Street Investors, Analysts Felt About Amazon's Q4 Earnings

Online retail giant Amazon.com, Inc. (NASDAQ: AMZN) reported Thursday after the close fourth-quarter earnings of $1.54 per share, ahead of the $1.35 per share consensus estimate. This was up from $1 in the year-ago period. Revenues during the quarter that encompasses the holiday selling season climbed 22 percent to $43.74 billion, below the $44.68 billion forecast by analysts.

Issuing guidance, the company said it expects sales of $33.25 billion to $35.75 billion for the first quarter, up an estimated 14–23 percent. However, operating income is expected to drop to $250 million to $950 million from $1.1 billion last year. The net sales guidance trailed expectations.

Reacting to the revenue miss and the lackluster guidance for the first quarter, the company's shares were down over 3 percent on Friday.

Here is how the sell-side reacted to the company's results:

Amazon's Long-Term Story Intact

Barclays thinks Amazon's long-term story is intact despite the investment cycle continuing into the first half of 2017. The firm attributed the weak guidance to heavy investments in content and international business.

Analyst Lloyd Walmsley noted that Amazon has some of the deepest long-terms moats within the internet space. The analyst said he would use the pullbacks such as these to add to long-term positions. When the investment cycle eventually ends, which the analyst surmises as in the first half, he believes the shares will fare better.

Barclays has a Buy rating on Amazon, while it bumped up its price target to $1,050 from $920.

Investments Well Balanced With Earnings Growth — Wedbush

Wedbush's Michael Pachter expects Amazon to continue delivering substantial earnings growth. The analyst believes AWS would continue to drive further gross margin expansion. The analyst also noted the continued unabated growth in Prime membership.

Wedbush trimmed its 2017 earnings per share and revenue estimate, reflecting slightly lower revenue across products, services and AWS and relatively unchanged operating expenses

Wedbush reiterated its Outperform rating and $900 price target.

Amazon To Benefit From Multiple Long-Term Growth Opportunities

Baird believes Amazon will benefit from multiple long-term growth opportunities across retail, technology and media. The firm said a majority of the shortfall was in e-commerce and to a lesser extent from AWS, its cloud business. Analyst Colin Sebastian noted that the North American electronics and general merchandise sales increased at the slowest pace in four years.

According to the analyst, sequential increase in gross margin helped offset operating expense growth to support platform initiatives including fulfillment/transportation, digital content, Alexa/Echo and India. Baird indicated that prime momentum continues despite mixed growth trend. The analyst sees heavy investment in 2017, but more balanced across geographies.

The firm maintains its Outperform rating and $850 price target.

We Had Not Expected Revenue Growth Expectations For 2017 To Falter — Nomura

Nomura Securities, which expected aggressive investment to be a near-term theme, was caught unawares by the faltering revenue growth expectations for 2017. On revenues, the firm noted that the biggest miss was in the international segment, with forex proving a greater drag than expected. With the first quarter revenue guidance now sub-par, the firm said the onus of carrying the financial story shifts to operating income and free cash flow.

The guidance and heavy capex, according to Nomura, suggests further investment in the near term. Nomura lowered its 2017 earnings per share estimate to $7.66 from $8.20 and that of 2018 to $13.37 from $14.13.

Nomura rates Amazon a Buy, but it lowered its price target to $925 from $950.

Benchmark Sees Soft Guidance Creating Better Entry Point

Benchmark attributed the earnings outperformance to operating leverage. Analyst Daniel Kurnos sees sustained high level of incremental expenditure, going by the below-consensus first quarter guidance. Given the fact that historically, the company outperforms in the first quarter and the company's track record of investing aggressively, generating positive return on investment, the analyst views the likely pullback as a buying opportunity.

Benchmark expects revenues of $166 billion for 2017 and OIBDA of $19.6 billion. The firm believes the increased investment in 2017 could help sustain top-line growth in the 20 percent range and significant flow through to cash flow during any pauses in the investment cycle.

Benchmark has a Buy rating on the shares of Amazon, while it lowered its price target to $925 from $950.

Amazon closed Friday's session down 3.54 percent at $810.20.

Latest Ratings for AMZN

DateFirmActionFromTo
Jul 2020Canaccord GenuityMaintainsBuy
Jul 2020Credit SuisseMaintainsOutperform
Jul 2020Morgan StanleyMaintainsOverweight

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