Jeff Bezos
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Wall Street is doubling down on Amazon.
On the heels of a record setting Amazon Prime Day, analysts are advising clients to buy into the company’s earnings report after the bell on Thursday. Many analysts were near glowing in their preview notes to clients, with some even raising their price targets this week.
The e-commerce giant’s shares are up 32% this year compared to the S&P 500 which is up over 20%.
To be sure, there are still plenty of key metrics investors should watch for, analysts say. Those include margin pressure, revenue growth, operating income, and the impact of Amazon Web Services. Shipping costs related to its new one-day delivery for Prime members is a potential problem spot, according to analysts.
Amazon’s recent profit “outperformance” has overshadowed other issues like revenue deceleration and regulatory scrutiny, analysts at J.P. Morgan said.
“Looking forward, we expect the Amazon narrative to shift back more toward top-line growth in 2H19, which in our view is important as Amazon remains a growth story and it’s too early for the company to be in harvest mode,” they said.
As long as things are trending in the right direction investors will be likely continue to be pleased, analysts at Evercore ISI said.
“While we expect that investors are willing to underwrite these investments as they represent a deepening of Amazon’s competitive moat, we suspect that they will only do so far as long as aggregate revenue growth trends remain within striking distance of estimates.”
No matter what, the stock is a “buy,” according to one analyst.
“”Amazon is our top mega-cap long idea heading into 2Q – you own the name into retail revenue growth acceleration regardless of margin compression, full stop,” analysts at Barclays said emphatically.
Here’s what else the major analysts are saying about Amazon’s upcoming earnings report:
Bank of America- Buy rating
“Continue to expect 2019 to end better than it starts; While added delivery costs are a risk, we think Amazon stock could benefit as y/y rev. growth deceleration moderates (or reverses) & Street gets optimistic on benefits of One Day shipping after a solid Prime Day. Also, Amazon is one of few large-cap Internet companies with a positive long-term margin expansion driven by mix-shift in revenue, and we expect healthy 2Q cloud growth to support the long-term thesis.”
Morgan Stanley- Overweight rating
“We raise our 2H:19 revenue estimates by ~1% as our industry conversations, AlphaWise survey data highlighting high Prime Now demand for multiple large AMZN categories, and easing Y/Y comps give us incremental confidence that AMZN’s 1-day shipping is leading to faster top-line growth. We now model accelerating growth throughout ’19. In all, we now expect AMZN retail revenue growth to accelerate to 16% ex FX in 3Q and for company-wide growth to accelerate to 20%. In a world of decelerating Internet stories we are bullish this leader for its ability to continue to disrupt and take share across industries…even its oldest one in retail.”
J.P. Morgan – Overweight rating
“AMZN is one of our top picks & is on our US Analyst Focus List. We believe a key driver of AMZN’s share price over the past ~12-18 months has been its significant profit outperformance, which has outweighed revenue deceleration concerns and ongoing regulatory & antitrust scrutiny. Looking forward, we expect the AMZN narrative to shift back more toward top-line growth in 2H19, which in our view is important as AMZN remains a growth story and it’s too early for the company to be in harvest mode.”
Barclays- Overweight rating
“AMZN is our top mega-cap long idea heading into 2Q – you own the name into retail revenue growth acceleration regardless of margin compression, full stop…We are cautious on OI for 2Q and 2019 in general based on management’s commentary that this year will return to normal pace of investment….Owning AMZN into accelerating growth in retail is a winning strategy in our view, hence our optimism into 2Q, despite the step down in operating profit.”
RBC- Outperform rating
“We continue to recommend that investors focus on AMZN’s Growth Curve Initiatives (GCIs)–AWS, AMS, International, Physical Stores & Alexa. What’s SO BULLISH about AMZN today–vs. even 5 years ago–is that AWS, 3P, scale, automation, etc… have generated sustainable profit pools (yes, profit pools) large enough to enable $800MM investments that don’t materially degrade the company’s financial profile. And near-term–say, H2:19–there’s the distinct possibility of Revenue Growth Acceleration–thanks to One Day and easing AWS & Retail Comps & consistently strong execution.”
Goldman Sachs – Buy rating
“We believe that a record number of retail store closures to date, investments in faster retail delivery, accelerating public cloud penetration and more stable pricing at AWS, positive inflection in the advertising business, and easing comps, increasingly point to the potential for accelerating growth and upside to consensus revenue expectations. While this will likely come at the expense of 6 straight quarters of y/y operating margin expansion as the company accelerates infrastructure investment from historically low levels, given the high returns Amazon generates off of its incremental capital investments, we believe the market will continue to value growth over margins, driving further stock price outperformance.”
Deutsche Bank- Buy rating
“We see Amazon in a sweet spot of slightly accelerating revenue and key performance indicator’s with continued margin expansion as the company benefits from continued efficiency improvements, despite the expensive shift to one-day prime. We slighty increase our top-line estimates towards the high end of guidance and see acceleration in revenue and unit growth (to 12%) in 2Q19, and with easing comps over the balance of the year and a benefit from one-day prime, we see revenue growth likely to accelerate again in 3Q.”
SunTrust- Buy rating
“We expect a strong performance, with total revs of +17% Y/Y, driven by share gains from retail, robust 3P services (commissions, FBA, advertising) and AWS. U.S. economic data points to strong non-store sales in 2Q, and YTD store closure announcements at a record level bode well for Amazon. Prime Day press release highlights also bode well for 3Q19 guidance. We view revenue upside as the primary driver for the stock, with profitability expectations already above the high-end of guidance.”
KeyBanc- Overweight rating
“Amazon’s Fifth Annual Prime Day was the biggest in company history – bigger than Black Friday and Cyber Monday combined – and largely avoided the technical difficulties of last year. The event lasted 12 hours longer this year, fueling the record sales. Similar to last year, Whole Foods offered a $10 Amazon Prime Day credit if a Prime Member spends $10 at Whole Foods in-store or on Prime Now. We believe that trends have improved since the 1Q and our higher estimates for U.S. retail underpin our increase in price target to $2,200.”
Canaccord- Buy rating
“After the company guided for a near-term margin hit from investment in one-day Prime shipping amidst a period of slowing growth, investors will be looking for evidence that the margin impact from one-day is temporary. We look for lower margins but concurrently expect a growth re-acceleration that we think can keep the stock in favorable territory.”
Citi- Buy rating
“How the stock will perform near-term is uncertain given this recent outperformance and given what might be a mixed Q2 report. On the plus side, 1) overall retail sales data has been solid; 2) hiring/opex and capex growth datapoints remain positive; and 3) the buy-side already anticipates a weak 3Q operating income guide. On the other hand, 1) consensus is modeling for stable AWS growth sequentially but it still faces tough comps and Azure’s deceleration in Q2 is somewhat concerning; and 2) mgmt may guide 3Q OI below consensus due to continued One-Day and Same-Day investments Assuming no add’l surprises, we’d likely view any weakness on the Q2 report as a buying opportunity.”
Evercore ISI- Outperform rating
“Focus in the quarter will be squarely on OI estimates as investors continue to grapple with the level of incremental investment that Amazon will allocate towards one-day shipping. While we expect that investors are willing to underwrite these investments as they represent a deepening of Amazon’s competitive moat, we suspect that they will only do so far as long as aggregate revenue growth trends remain within striking distance of estimates.”
Credit Suisse- Outperform rating
“We lower our operating income forecast for 2H19/2020 as we expect Amazon to underwrite faster Prime shipping across a greater selection of products, with a rationale consistent with past practice – to place greater distance between its consumer value proposition vs its competitors. With that willingness to invest comes the expectation of greater market share gains and faster GMV growth longer term.”
