Why Analysts Are Taking Mixed Views on Amazon After Earnings

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Amazon.com Inc. (NASDAQ: AMZN) reported third-quarter financial results after markets closed on Thursday. Unfortunately, this quarter disappointed on the bottom line, but this is nothing longtime Amazon investors haven’t dealt with before. However some analysts saw this as Amazon potentially slowing down while others were expecting a pullback eventually, with all the recent success this company has had.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts are saying about Amazon after the report.

The company said that it had $0.52 in earnings per share (EPS) and $32.7 billion in revenue, compared to consensus estimates from Thomson Reuters of $0.78 in EPS and revenue of $32.69 billion. The same period of last year reportedly had EPS of $0.17 and $25.36 billion in revenue.

In terms of guidance for the fourth quarter, the company expects net revenues in the range of $42.0 billion to $45.5 billion and operating income to be between $0 and $1.25 billion. The consensus estimates call for $2.14 in EPS and $44.58 billion in revenue for the current quarter.

During the past quarter, Amazon launched Amazon Music Unlimited, an on-demand music streaming service with tens of millions of songs and thousands of curated playlists and personalized stations.

For the current quarter, the company expects to create 120,000 seasonal jobs in customer fulfillment and customer service for the holiday season. Last year, Amazon transitioned more than 14,000 seasonal positions to regular, full-time roles after the holidays, and it expects to increase that number this year.

Credit Suisse maintained its Outperform rating but lowered its price target to $1,000 from $1,050. The firm detailed in its report:

We submit that the strategic/product rationale for the stepped up investment in content, fulfillment centers, and data centers already should be well-familiar to investors. We maintain our Outperform rating and our thesis remains: 1) free cash flow should reset higher as capital intensity to run AWS (with capital and financing leases) is starting to level off as usage growth drops below 100%, and 2) e-commerce segment operating margin expansion due to continued shipping loss moderation.

Jefferies reiterated a Buy rating for Amazon with a $950 price target. The firm commented:

Amazon reported a mixed quarter with in-line rev and a bit soft margins. Guidance came in below expectations as Amazon keeps investing in India, fulfillment, digital content, and AWS. We continue to believe that Amazon should be a core eCommerce holding as it still has plenty of growth opportunities ahead. The company remains one of the best large-cap ideas in our coverage universe, with one of the most significant moats.

A few other analysts weighed in on Amazon after the report:

  • Canaccord Genuity has a Buy rating and raised its price target to $900 from $825.
  • Deutsche Bank lowered its price target price to $920 from $985.
  • Goldman Sachs lowered its price target from $1,050 to $1,010.
  • RBC has an Outperform rating and lowered its target to $950 from $1,000.
  • Susquehanna raised its price target price to $1,250 from $950.
  • Merrill Lynch reiterated a Buy rating with a $960 price objective.

Shares of Amazon closed Friday down 5% to $775.88, with a consensus analyst price target of $920.02 and a 52-week trading range of $474.00 to $847.21.