Credit Suisse's Big Expectation Changes for Amazon, Wayfair, Grubhub, Google and More

Credit Suisse previewed earnings for Amazon for January 31. The firm maintained its Outperform rating but lowered its price target handily, down to $2,100 from $2,400. That was well above consensus, and the street-high price target was $2,700. The company’s fiscal year 2019 earnings per share estimate moved to $41.66 from its prior $41.41.

The logic for its price target cut is that the firm’s Ju lowered his revenue estimates for 3P seller commission rates. Credit Suisse expects the following items to be of primary focus with this week’s key earnings report:

  • Potential unit volume and revenue growth stabilization due to greater free shipping subsidies through the holidays, as well as for 2019, as Amazon exits a period of tougher comparisons due to a decrease in the free shipping minimum
  • Lower seller referral and higher FBA fees
  • Higher USPS fees
  • Minimum wage hikes
  • And more moderate 1P/3P mix shift

Ju also said in the call:

Adding up these factors, we believe Amazon will display throughout 2019 better-than-expected unit and revenue growth offset by a slower pace of profit dollar growth given the incremental expense items. Although this is different versus the outsized operating profit beats the company has displayed 1Q18-3Q18, we expect investors to receive well what should be a more moderate deceleration path.

Ju’s Outperform rating on Amazon is predicated on the longer-term factors, such as:

  • E-commerce segment operating margin expansion as Amazon grows into its larger infrastructure
  • Optionality for faster-than-expected free cash flow growth vis-à-vis its advertising segment
  • And upward bias to AWS revenue forecasts and likely more moderate deceleration path as suggested by ongoing capital intensity in the business

These calls saw gains on a down day in the markets on the upgrades:

  • Wayfair shares closed up 2.2% at $104.47.
  • Grubhub closed up 0.3% at $80.99.
  • Amazon closed down 2% at $1,637.89.
  • Alphabet (GOOGL) shares closed down almost 2% at $1,079.86.
  • Booking Holdings closed up 0.6% at $1,813.60.
  • Expedia shares closed virtually unchanged (down just seven cents) at $117.04.

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