Amazon Ad Call Finds Macro Headwinds Taking Toll On Business, Analyst Says; Reiterates 'Buy' On Low E-commerce Penetration - Amazon.com (NASDAQ:AMZN)

Mizuho analyst James Lee reiterated a Buy on Amazon.Com Inc AMZN with a $135 price target.
Lee hosted an investor call on Amazon's advertising trends with a leading digital marketing platform.
Based on tracking of a leading Amazon ad partner, ad spending growth per advertiser declined eight percentage points to -5% Y/Y growth.
The typical lift in Q4 was much more shallow than in prior years at 10% Y/Y growth vs. 19% in the previous quarter.
During the quarter, Lee noted that CPC trends for discretionary categories declined due to slowing economic growth.
Staple categories also faced pressures as CPG advertisers are looking to reduce costs, with ad pricing growth for Beauty & Personal Care and Health & Household declining after holding stable for the past few quarters.
The declining ad spending per advertiser and decelerating CPC trends in discretionary categories despite the second Prime Day reflected macro headwinds. It indicated a mix shift to services, tighter consumer budgets, and elevated staples inflation.
Thus, Lee notes that the seasonal lift of ad spending is meaningfully less than in prior years, accounting for the impact of 3Q22's Prime Day.
The analyst feels consensus e-commerce revenue reflects that in 4Q22, but FY23 seems optimistic at 8% Y/Y, compared to the analyst's estimate of 7%.
The re-rating reflected a low penetration rate of e-commerce of >20%, positive long-term fundamentals but expected stock volatility from potential downward revisions near-term.
Price Action: AMZN shares traded higher by 2.10% at $95.65 on the last check Friday.

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