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Analysts React To Amazon's Q1: Everyone Remains A Bull

April 26, 2019 11:55 am
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Amazon.com, Inc. (NASDAQ:AMZN) reported a notable beat on the profit line in its first-quarter results, although management's operating profit outlook for the second quarter fell short of expectations. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

  • Bank of America's Justin Post maintains a Buy rating on Amazon's stock with a price target lifted from $2,100 to $2,300.
  • Raymond James' Aaron Kessler maintains at Outperform, price target lifted from $1,960 to $2,030.
  • Credit Suisse's Stephen Ju maintains at Outperform, price target lifted from $2,100 to $2,200.
  • Benchmark's Daniel Kurnos maintains at Buy, price target lifted from $2,000 to $2,300.
  • Aegis Capital's Victor Anthony maintains at Buy, price target increased from $2,225 to $2,250.
  • Morgan Stanley's Brian Nowak maintains at Overweight, price target lowered from $2,200 to $2,100.
  • Wedbush's Michael Pachter maintains at Outperform, price target lifted from $2,000 to $2,350.
  • KeyBanc's Edward Yruma maintains at Overweight, unchanged $2,100 price target.
  • Tigress Financial Partners' Ivan Feinseth.

Amazon's stock traded around $1,916.11 per share at time of publication.

BofA: Mixed Quarter In Review

Amazon reported a mixed quarter as EPS of $7.09 solidly beat expectations of $4.70 and revenue of $59.7 million matched estimates, Post said in a research report. Beyond the headline numbers, gross margin of 43.2 percent beat estimates of 41.3 percent and operating income grew 130 percent to $4.42 billion which came in 40 percent better than expected.

Unit growth of 10 percent year-over-year missed estimates of 14.8 percent growth and decelerated by four basis points on a one-point easier comp. Other Revenue (majority advertising) of $2.72 billion slightly missed expectations of $2.74 billion.

Post noted that Web Services revenue of $7.7 billion matched estimates as did operating income of $2.22 billion.

Raymond James: Items To Like, Negatives

Amazon's print includes two positive takeaways and three negative readouts, Kessler said in a research report. On the positive side:

  1. AWS sales growth of 31 percent was strong and margins of 28.9 percent were solid despite a sequential drop from 29.3 percent last quarter;
  2. North American retail operating margin rose 260 basis points to 6.4 percent and international margin improved 360 basis points to negative 0.6 percent.

The three negatives include:

  1. Unit growth decelerated due to a mix shift from digital downloads and a tougher fourth quarter comp;
  2. Second quarter GAAP operating income guidance fell short due to an $800 million investment in one-day shipping; and
  3. Other revenue growth of 34 percent marks a slowdown from the high 30s, which was normalized in the fourth quarter.

Credit Suisse: 'Old Amazon' Will Return

The announcement it will improve Prime delivery from two days to one day implies the company is focusing on growth instead of a profitability balance, Ju said in a research report. Said different, investors will "get their old Amazon back."

Ju said Amazon likely realized competing on price is unsustainable and it needs to heavily invest in delivery. While the new focus prompts a downward revision to near-term profit estimates, the company is better positioned to show gross merchandise volume (GMV) growth in 2020 and beyond.

Related Link: KeyBanc: Amazon's New Stylist Initiative Shows 'Intensification' Of Apparel Efforts

Benchmark: Winning Isn't Cheap

Amazon's $800 million investment in one-day delivery is "costly" but could solidify the company's dominance, Kurnos said. Amazon's faster delivery ambitions could prompt its biggest competitors to react with "less supportive" infrastructure.

Kurnos said any decision Amazon makes to improve its growth profile is "likely to play well" as investors continue to debate if Amazon is a value company or a growth story.

Aegis: Potential 'Game Changer'

Amazon's one-day shipping initiative is a potential "game changer" if done properly, Anthony said. Amazon could see significant share gains in retail for the simple reason that two-day shipping "does not work for some customers."

Morgan Stanley: Competitors Haven't Solved Two-Day Shipping

At a time when Amazon is shifting to one-day shipping options, Nowak said the majority of existing logistics and parcel delivery companies have yet to master two-day shipping options. Amazon's new focus on logistics represents a potential "shoe-horn" for third-party shippers to use Amazon's advanced logistics network.

Amazon's total addressable market expansion in the U.S. alone is a $900 billion opportunity, according to the analyst.

Wedbush: Spending 'Approaching A Plateau'

Amazon's operating expenses are likely to rise in the near-term but the company looks to be "approaching a plateau" for spending in several areas, including fulfillment centers, Pachter said. The company will likely soon approach an era of expanding its fulfillment centers at a "steady" pace of around 100 or so each year.

KeyBanc: AWS Expansion

AWS has now reached a $30-billion revenue run-rate. Yruma said based on the business' current momentum, it's reasonable to assume it can expand by around $10 billion in 2019 as the business scales to a $35 billion-plus run-rate.

Tigress: Trillion-Dollar Opportunity Ahead

Amazon boasts multiple growth levers in the pipeline, one of which includes a potential significant push into the $3.5 trillion health care industry, Feinseth said in his daily newsletter. As such, potential incremental upside in Amazon's stock remains and investors should be buyers of the stock.

Loup Ventures: One Of Many Pushes To Disrupt Retail

Amazon's investments to build out a one-day delivery business shouldn't come as a surprise as it is consistent with the company's 2018 letter to shareholders, Andrew Murphy and Gene Munster wrote in a blog post. CEO Jeff Bezos said in 2018 it will "extend and solidify" its current market leadership position in retail.

Since the beginning of 2019, Amazon has already announced nine new initiatives in retail. Some examples include keyless entry for package deliveries, the launch of a new skincare line with 12 products called Belie and expansion of grocery delivery options.

Amazon's game-plan boils down to "doubling down" on its competitive advantage at a time when retailers "struggle" to offer two-day shipping options.

Photo courtesy of Amazon.

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