How Analysts Take Such Different Views of Amazon After Earnings

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Amazon.com Inc. (NASDAQ: AMZN) reported its fourth-quarter results late on Thursday and investors were not exactly pleased. Analysts issued somewhat mixed calls on the stock following these earnings as well. While most maintained a positive rating for the stock, some price targets were seen to be slipping.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts said afterward.

The online retailer posted earnings per share (EPS) of $1.54 and revenues of $43.7 billion, which compares to the Thomson Reuters consensus estimates calling for a loss of $1.35 per share and $44.68 billion in revenues. In the same period a year ago, Amazon reported EPS of $1.00 on revenues of $35.7 billion.

In terms of guidance for the first quarter, net sales are expected to be between $33.25 billion and $35.75 billion. Operating income is projected to be between $250 million and $900 million, down from $1.1 billion in the first quarter of last year.

Analysts estimate first-quarter EPS of $1.65 and revenues of $35.95 billion, compared with year-ago results of $1.07 in EPS and $29.13 billion in sales. For the full year, analysts are forecasting EPS of $8.62 and revenues of $168.07 billion.

Amazon Web Services (AWS) revenues totaled $3.54 billion, up about 47% from a total of $2.41 billion in the fourth-quarter of last year. AWS accounted for $926 million in fourth-quarter operating income, nearly 60% greater than the $580 million total in the first quarter. For the year, AWS sales grew 55% and increased the division’s contribution to net sales from 7% in 2015 to 9% in 2016.

Wedbush reiterated an Outperform rating with a $900 price target. The firm commented in its report:

We expect Amazon to continue delivering substantial earnings growth. Even after modest 2H:16 earnings results, Amazon’s outsized beats in 1H:16 and still meaningful y-o-y EPS growth in 2H:16 signal that the company intends to grow profits despite quarterly volatility. Amazon Web Services’ (AWS) gross and operating margin growth has outpaced revenue growth, the mix of Fulfillment by Amazon (FBA) and AWS should drive further gross margin expansion and Prime membership growth has continued unabated. Although operating margin expansion has been tempered by increased spending on video content, fulfillment, and international expansion, the trajectory is clear and the company’s investment strategy purposeful.

Credit Suisse reiterated an Outperform rating but cut its price target to $900 from $950. The brokerage firm stated its investment case as follows:

The controversy in AMZN shares today will be the unit volume deceleration to 24% YOY (vs 28% in 3Q16) – as 4Q/Holidays have been relative peaks for the company, we submit that we are likely to see a recovery to that growth rate in 1Q/2Q/3Q instead. We also note the acceleration of Unearned Revenue growth (53% vs 3Q16 37%) as it added $4.0b to this balance due primarily to AWS Reserved Instances as well as Prime sign-up strength. The former in tandem with an acceleration in capital lease activity suggests ongoing strength in AWS, despite the modest deceleration to 47% FX-neutral growth. Given the higher-than-expected aggregate capex at $4.4b, our near-term FCF estimates decrease but this we believe affords greater upward bias to not only our e-commerce segment but also AWS forecasts. We maintain our Outperform rating and our updated investment thesis for AMZN shares is predicated on the following longer-term factors: 1) re-establishment of e-commerce segment operating margin expansion as Amazon grows into its larger infrastructure, 2) ongoing margin benefit due to shipping loss moderation, and 3) upward bias to AWS revenue forecasts and likely more moderate deceleration path as suggested by ongoing capital intensity in the business.

Merrill Lynch reiterated a Buy rating as well and backed its price target off slightly to $1,100 from $1,125. According to its report:

Amazon is an eCommerce leader with market share and margin potential stemming from its global scale, fulfillment footprint and technology platform investments. We think Amazon’s focus on the customers and the buyer experience is right for the Internet, and we consider Amazon a transformational company. We think Amazon is well positioned to capitalize on the global growth of eCommerce and other secular trends such as cloud computing, online advertising, connected devices, and mobile commerce.

Some other analysts weighed in on Amazon as well:

  • Jefferies has a Buy rating and raised the price target to $975 from $950.
  • Stifel has a Buy rating and raised the price target to $912 from $888.
  • Raymond James raised the price target to $925 from $900.
  • UBS has a Buy rating and lowered the price target to $930 from $950.
  • RBC lowered its price target to $900 from $950.
  • Benchmark has a Buy rating and lowered the price target from $950 to $925.
  • Mizuho lowered the price target to $905 from $920.
  • Deutsche Bank has a Buy rating and raised the price target to $1,050 from $920.
  • Canaccord Genuity has a Buy rating and raised the price target to $900 from $875.

Shares of Amazon closed Friday down 3.5% at $810.20, with a consensus analyst price target of $929.10 and a 52-week trading range of $474.00 to $847.21.