After Amazon dropped on its earnings report, Wall Street analysts mostly stuck by the internet juggernaut, tweaking estimates and lowering price targets slightly.
Amazon shares dropped sharply during its earnings call and are down just around 4 percent in pre-market trading Friday to $1,644. Some analysts did warn choppy trading could be ahead ahead due to uncertainty in India, higher investment spending, slowing growth, and a weaker outlook.
Goldman Sachs analyst Heath Terry was one of the few standouts, actually raising his 12-month price target to $2100. “We continue to believe Amazon represents the best risk/reward in Internet given the relatively early-stage shift of workloads to the cloud, the transition of traditional retail online, and share gains in its advertising business, the long-term benefits of each we believe the market continues to underestimate for Amazon,” Terry wrote.
Barclays analyst Ross Sandler lowered his price target and thought that, “stepping back, the 20% pullback in Amazon since September 2018 (vs. -7% S&P), in our view, prices in much of the concerns around growth & pace of margin expansion in retail, and we would let the dust settle & add on weakness.”
RBC’s Mark Mahaney said in his earnings recap note, “Amazon traded off 5% in the aftermarket because: a)
it was a Modest Beat & Mixed Quarter AND stock was up 14% YTD (3% yesterday), implying high expectations; b) cautious Q&A commentary around impact of potential India regulations; & c) commentary suggesting ’19 would see step-up in investment spend…That said, we view the Amazon Long Thesis as Very Well Intact.”
Also commenting on the stock trading lower was Youssef Squali from SunTrust who said, “We believe the stock is down after-hours on a soft 1Q19 rev/Op. Inc. guide, risk from India’s new ecom regulation, prospects for higher investments in 2019, all on the back of a stock that’s outperformed peers.”
Justin Post from Bank of America kept his $2100 price target and said, ” A mixed and somewhat uneventful quarter for Amazon, with some ongoing deceleration but generally healthy growth for Amazon’s higher margin businesses (AWS strength remains a key reason to own the stock).” Post thinks the second half could be better than 1H.
J.P. Morgan’s Doug Anmuth lowered his price target but pointed out that, “as one investor suggested last night about 4Q earnings, “there’s a little bit in here for everybody.”
Deutsche Bank’s Lloyd Walmsley also raised his price target and said, “We think Amazon is ultimately going to substantially expand its physical footprint and push further into healthcare and shipping/logistics, opening up its addressable markets further. Notwithstanding the volatility in the shares, we think valuations remain compelling..”
PiperJaffray Michael Olson slightly raised his price target and titled his note to clients with, “Don’t be scared.”
Here’s what the other big analysts had to say:
“3 Reasons We Believe Amazon Will Be Able to Drive Higher Earnings Power: The good news is 1) Amazon still has a scaling bucket of high margin AWS, advertising and subscription revenue streams that we see enabling the company to re-invest and drive faster growth. Consider that we now have $14bn in net retail losses (from investment) in 2019 vs $12bn in 2018… 2) They have done this before across multiple categories and industries (retail – category by category, AWS, logistics, etc) and 3) AMZN has been planting investment seeds in multiple areas over the past few years that are likely to be the key to driving reacceleration… We fully acknowledge building/scaling these business could take time…but valuation isn’t stretched compared to growth.”
“Amazon reported Q4 profitability just above consensus forecasts, with operating income margin expanding ~170bps y/y (vs. +580bps in Q3) driven by AWS, advertising, and operational efficiencies, offset by deleverage in marketing primarily from sales hiring..We continue to believe AMZN represents the best risk/reward in Internet given the relatively early-stage shift of workloads to the cloud, the transition of traditional retail online, and share gains in its advertising business, the long-term benefits of each we believe the market continues to underestimate for Amazon…”
“Amazon reported mixed 4Q results that will fuel lingering questions around topline growth, but we do not view trends as thesis changing, despite guidance for slower growth and an outlook for increasing investment… We could see the shares tread water near term around top-line concerns but with profitability solid and improving, the shares look increasingly supported on a valuation basis and we see plenty of room for revenue to continue growing across retail, AWS and advertising… The 1Q guide likely bakes India risk into a weaker top line but likely was not reflected fully in potential operating income savings from slower growth in India given negative unit economics (see our note Feedback from India on the eCommerce Regulations )… AWS growth came in better than expected, and the cloud business remains well positioned to deliver robust growth for years ahead at attractive margins. Advertising, which likely is still growing at around the 50% YoY pace, is also a high-margin business opportunity that can grow on-platform and off of Amazon. We think Amazon is ultimately going to substantially expand its physical footprint and push further into healthcare and shipping/logistics, opening up its addressable markets further…”
“As one investor suggested last night about 4Q earnings, “there’s a little bit in here for everybody.” We agree.. Increased investments will be the primary focus, but we still expect 60 bps of operating margin expansion in 2019 and we don’t believe management’s comments suggesting accelerated spending were that different from what we and consensus had been projecting… Importantly, while 2018 was an abnormal margin expansion year, we think there’s very little chance that AMZN de-levers in 2019 given the scale & efficiencies it has built into its businesses… Uncertainty in India, along w/a higher 4Q base, takes early 2019 revenue acceleration off the table… But we still expect AMZN to grow revenue 18% FXN for the year and operating income by 30%. And we want AMZN to invest into long-term growth opportunities…”
“Amazon’s 4Q18 results were overall better than expected. Revenue was at the high end of guidance and slightly above expectations, with N.A. Retail in-line and AWS and Int’l Retail slightly above. Operating Income (OI) was above guidance and expectations. While AWS’ OI margin declined slightly m/m, it remains healthy (29%) and incremental margins remain >35%. Similarly, noise from various factors (Prime account change, device sales, Whole Foods comp) continues to cloud organic trends somewhat. With investors focusing on the high-end of mgmt’s guidance, Q1 revenue guidance was in-line and OI guidance is slightly above. That said, uncertainty in India (new regs) and potentially higher investment spending is worth monitoring.”
“In AMZN’s Q4’18 reported results & Q1’19 commentary, we believe that AMZN climbed many of the “walls of worry” that had dominated company debates over the past 3-4 months (fears of slower end demand, overall rates of growth, etc.). However, investor debates quickly pivoted to how accounting nuance, eCommerce mix shift (between 1P and 3P), more pronounced advertising Q4 decel & forward margin commentary (gross & EBIT) could act as potential headwinds in 2019 (year of investing vs year of efficiencies). As reflected in our modest estimate changes, we don’t think the puts/takes result in a new narrative for Amazon (just a need to digest some nuances). We still remain focused on multiple pathways to sustainable revenue growth (cloud, advertising, category/geo expansion for eCommerce) & that overall gross/EBIT margins should continue to expand in 2019 and beyond…”
“AMZN reported rev & OI largely in-line with consensus, and guided in-line at the high-end of the range… The biggest question we are pondering coming off the print is whether AMZN leaning into heavier investments in 2019 will lead to accelerating growth rates (as was the case in 16/17) or suboptimal teens growth with contracting margin… AWS continues to be the stand-out performer with revenue exceeding our expectations at +46% Y/Y. Stepping back, the 20% pullback in AMZN since September 2018 (vs. -7% S&P), in our view, prices in much of the concerns around growth & pace of margin expansion in retail, and we would let the dust settle & add on weakness…”
“See 2H better than 1H; A mixed and somewhat uneventful quarter for Amazon, with some ongoing deceleration but generally healthy growth for Amazon’s higher margin businesses (AWS strength remains a key reason to own the stock)… The drop in retail gross margin growth and slowing unit growth is a concern, with risk of increased retail investments… We continue to belive the stock could see better relative performance starting in the late Spring as y/y revenue deceleration moderates and Street gains better visibility on 2019 investment initiatives…”
“We believe the stock is down after-hours on a soft 1Q19 rev/Op. Inc. guide, risk from India’s new ecom regulation, prospects for higher investments in 2019, all on the back of a stock that’s outperformed peers… We maintain a Buy rating and adjust our ests and PT to $2,220 from $2,250 to reflect solid 4Q18 results, which topped Street expectations, and prospects for 14% and 25% CAGRs for revenue and EBITDA over the next 5 yrs… The growing weight of service revenue (39% of revs, growing at +48% Y/Y in 2018 like-for-like, by our estimate), is a boon to top line growth and profitability over time…”
“AMZN’s 4Q clearly showed some slowing trends across various parts of the business (surprisingly not in its online store sales, though we believe that is enjoying a lift from AMZN devices and a Whole Foods reporting nuance… Recognizing that N.A. and Prime came up short, it is fair to question the magnitude of the trajectory upwards. However, that trajectory is still one pointed nicely upwards and it remains through higher margin segments. Although none of this is “unknown” to the Street, the reality is that based on our estimates, AMZN is now trading ~14x FY20E EBITDA, and the out years grow even more (meaningfully) attractive from here, suggesting AMZN will actually begin to become cheaper than its retailing peers/victims… As such, we reiterate our Buy as we believe that through the slowing sales, investors will begin to fully view the profit potential and oddly enough trade a focus around sales for one around valuation…”
“Amazon reported revenue and op income slightly above consensus for Q4… Online stores and AWS were above estimates, while physical stores, 3rd-party seller services, subscription and other were all slightly below consensus. AWS growth was 46% y/y FXN in Q4 (unchanged from Q3)… The mid-point of Q1 op income guidance is 7% below consensus, on a revenue mid-point 5% below the Street… The company’s op income upside in Q4 was not as significant as some had hoped, a reminder that Amazon continues to heavily invest to drive growth… Minimal Q4 op income upside and comments about 2019 spending is concerning for some investors, but we believe 2019 opex comments were not intended to suggest a material margin impact…”
