Here's Why Analysts Are Lowering Price Targets On Amazon After Q1 Earnings

Zinger Key Points
  • Amazon’s retail operations are no longer growing meaningfully faster than overall U.S. retail. If that continues, there’s a long-term downward bias to consensus sales estimates.
  • An analyst pointed to Amazon potentially not being as far ahead of big-box competitors as it once was.

E-commerce giant Amazon.com, Inc. AMZN reported mixed earnings Thursday and announced guidance that came in lower than analysts' estimates for the second quarter. Here's why analysts are lowering their price targets and sound more cautious moving forward. 

The Amazon Analysts: MKM Partners analyst Rohit Kulkarni had a Buy rating and lowered the price target on Amazon from $4,000 to $3,625.

Stifel analyst Scott Devitt had a Buy rating and lowered the price target from $4,400 to $3,800.

Raymond James analyst Aaron Kessler had an Outperform rating and lowered the price target from $3,950 to $3,300.

Rosenblatt Securities analyst Barton Crockett had a Neutral rating and lowered the price target from $3,000 to $2,900.

Needham analyst Laura Martin had a Buy rating and lowered the price target from $4,150 to $3,500.

Telsey Advisory Group analyst Joseph Feldman had an Outperform rating and lowered the price target from $3,850 to $3,400.

Related Link: Amazon Q1 Takeaways: Mixed Earnings, Lower Guidance Sends Stock Falling

Earnings Reactions: MKM Partner's Kulkarni pointed to Amazon’s first-quarter revenue that was towards the high end of company guidance and in line with Street estimates.

“As we enter the new normal, we see an improving fundamental setup for 2H22 and 2023 driven by normalized commerce growth, sustained premium AWS growth, and lower opex/capex,” Kulkarni said.

Stifel's Devitt saw the second half as an exciting time for Amazon and what investors should be focused on.

“Growth will accelerate in 2H as comps ease, Prime Day shifts into 3Q, and consumer spending habits normalize following a period of elevated demand for travel/experiences,” Devitt said.

Prime Day was in the second quarter of last year and the analyst saw the move as strategic by Amazon.

“As the year progresses and volume builds towards Prime Day and the seasonal high in 4Q, Amazon should see improvements in both of the highlighted internal areas, resulting in easing cost pressure and expanding operating margins.”

Rosenblatt's Crockett points to slower growth being displayed by Amazon in its online retail segment.

“Amazon’s retail operations are no longer growing meaningfully faster than overall US retail. If that continues, there’s a long-term downward bias to consensus sales estimates,” Crockett.

Crockett pointed to Amazon potentially not being as far ahead of big-box competitors as it once was.

“This is important because if Amazon is no longer a big retail out-performer, long-term consensus sales estimates for the company are too high.”

Needham's Martin pointed to Amazon as a Services company and not a Products company, which justified a higher valuation multiple.

“As evidence, 1Q22 Services rev were $60B (larger than Products), and Services op inc was $9.4B, about 5x Products, we estimate,” Martin said.

Martin also highlighted potential hidden value with Amazon’s media assets worth $517 billion.

AWS Growth: Amazon’s AWS segment saw strong results and was noted as record-high growth by Kulkarni.

Kessler highlighted the growth of AWS and record-high operating margins of 35% for the Amazon segment in the first quarter.

“AWS revenues of $18.4B increased 37% y/y driven by strong customer demand,” Kessler said.

Telsey's Feldman saw growth and profitability of the AWS segment as key pieces moving forward.

“Amazon also continues to generate strong growth of AWS, which continues to fund the business,” Feldman said. “The strong growth and profitability of AWS, as well as its media and advertising offerings, should continue to outperform the company average and support Retail.”

AMZN Price Action: Amazon shares were down 14.05% to $2,485.63 Friday at market close.

 

Posted In: Aaron KesslerAmazonAWSBarton Crockettcloud stocksecommerce stocksJoseph FeldmanLaura Martinmedia stocksMKM PartnersNeedhamRaymond JamesRohit KulkarniRosenblattScott DevittStifelTelsey Advisory GroupAnalyst ColorEarningsNewsPrice TargetReiterationAnalyst RatingsTrading Ideas