Case Study: What Credible analysts are saying on Amazon (AMZN) stock
Key Points
Amazon shares rallied by 10.9% this week, yet they’re still down by 40.85% on the year; this compares poorly to the S&P 500 which is down by 16.75% on the year and the Nasdaq Composite Index which has fallen by 28.48% during 2022 thus far.
Amazon faces macroeconomic headwinds which have caused its major growth engines to slow. Poor fundamental results have led to the stock’s price-to-earnings ratio increasing, even as its share price falls.
AMZN posted Q3 earnings recently, missing Wall Street’s expectations with $127.1 billion in sales (which was $370 million below consensus), but beat estimates on the bottom-line, posting non-GAAP earnings-per-share of $0.28.
59% of recent articles published by credible authors focused on AMZN shares were “Bullish”. Only 14 out of 15 credible Wall Street analysts believe shares are headed higher. The average price target being applied to Amazon shares by credible analysts is $177.21, which implies upside potential of approximately 69.9% relative to AMZN’s current share price of $100.77.
Performance
Event & Impact
Noteworthy News:
Nobias insights
Amazon is the poster child of tech companies that have generated fantastic long-term wealth for their shareholders. Since its IPO in May 1997, AMZN shares have generated total returns north of 134,000%. During the last decade, AMZN shares have risen by 795%.
And yet, during 2022 this stock has been a major underperformer, falling by 40.85% on a year-to-date basis, compared to the S&P 500 which is down by 16.75% on the year and the Nasdaq Composite Index which has fallen by 28.48% during 2022 thus far.
Amazon recently reported third quarter earnings which disappointed Wall Street, inspiring the latest leg of the company’s sell-off. And yet, despite serious weakness during 2022, the credible authors and analyst that Nobais tracks largely maintain their “Bullish” outlook for shares.
AMZN Nov 2022
Bearish Nobias credible authors:
Huileng Tan, a Nobias 4-star rated author, recently published an article at Business Insider that put the extent of Amazon’s recent sell-off into historical perspective. Tan said, “Amazon has become the first public company ever to lose $1 trillion in market value amid the tech stock rout, according to Bloomberg.”
Breaking down the sell-off, Tan wrote, “The world's largest online retailer's share price closed 4.3% lower at $86.14 on Wednesday, taking its market capitalization to about $879 billion.” She continued, “The stock has lost around 48% of its value this year alone, and is a far cry from July 2021 when the company's market cap almost touched $1.9 trillion, per Bloomberg.”
Tan highlighted a quote provided by Amazon’s CFO, Brian Olsavsky, during the company’s recent Q3 earnings call. Olsavsky said, "We are seeing signs all around that, again, people's budgets are tight, inflation is still high, energy costs are an additional layer on top of that caused by other issues. We are preparing for what could be a slower growth period, like most companies."
During the third quarter, Amazon missed Wall Street’s expectations with $127.1 billion in sales (which was $370 million below consensus), but beat estimates on the bottom-line, posting non-GAAP earnings-per-share of $0.28..
Although Amazon missed sales expectations, the company is still growing revenues at a double digit rate. In its Q3 report, the company stated, “Net sales increased 15% to $127.1 billion in the third quarter, compared with $110.8 billion in third quarter of 2021. “Excluding the $5.0 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 19% compared with third quarter of 2021.”
Dani Cook, a Nobias 4-star rated author, put a spotlight on Amazon’s recent earnings data in a recent report that she published at the Motley Fool. Cook mentioned the company’s top and bottom-line results and then said, “Meanwhile, Amazon Web Services brought in $20.5 billion versus the expected $21.1 billion.” She continued, “AWS was responsible for 100% of Amazon’s operating income in Q3, underscoring how crucial the cloud computing business has become.” And, she said, “AWS lost some steam in the company's latest quarter, with its year-over-year rise of 27.4% lower than Q2 2022's increase of 33% and Q3 2021's 39%.” Amazon CFO Brian Olsavsky attributed the slowed growth primarily to consumers and businesses reining in spending.”
Cook believes that the slowdown in Amazon’s cloud business was a primary catalyst for its recent sell-off. Also, she points out, the company’s forward guidance left investors wanting more. Cook wrote, “The company's fourth-quarter forecasts have also fallen short. Amazon is expecting revenue of $140 billion to $148 billion, amounting to a year-over-year rise of 2% to 8%. Analysts at Refinitiv had previously projected that the company would earn $155.15 billion for the quarter.”
In response to rising costs applied to the company’s retail business by high inflation, she says that the company is cutting costs. Cook wrote, “So far, CEO Andy Jassy has responded by cutting costs in multiple divisions, such as reducing its warehouse footprint, axing some experimental tech projects, shutting down its telehealth service, Amazon Care, and pausing hiring in its executive positions.”
The macroeconomic conditions that Amazon faces concern her. Cook continued, “Amazon is likely to continue suffering declines in the short term as geopolitical and macroeconomic factors keep operating costs high but consumer spending low.”
However, she noted, “the future is still bright for the e-commerce titan.” “Regardless of temporary market declines in the next year,” Cook stated, “Amazon is well-positioned to see significant gains once it bounces back.” But, she states, “With a price-to-earnings ratio that is about 21% higher than a year ago -- despite the steep drop in the stock price -- Amazon's shares are not the cheapest around despite a sell-off.” And therefore, Cook concluded, “Amazon is likely to come back strong over the long term, but it might be best to first watch its AWS business and wait until it begins seeing improving quarterly growth again before committing to Amazon.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Kevin Coupe, a Nobias 4-star rated author, published a recent article that put a spotlight on the company’s cost cutting measures. Coupe said, “Amazon said yesterday that it is freezing corporate hiring "for the next few months," a move that it said "is due to the economy and 'in light of how many people we have hired in the last few years'," the Seattle Times reports.” He continued, “The story notes that "Amazon already has paused hiring in its corporate retail division, which includes online and physical stores, its marketplace for third-party sellers, and its Prime subscription service. The company also reportedly stopped hiring for its advertising business and at Amazon Web Services, its cloud computing arm and one of the most profitable parts of the company.”
Tristan Bove, a Nobias 5-star rated author, also touched upon macroeconomic issues facing Amazon in a recent report that he published at Yahoo Finance, stating, “A week before the earnings report, Amazon founder and former CEO Jeff Bezos advised people to “batten down the hatches” in anticipation of a clouding economic environment.”
There is no shortage of macro concerns surrounding this mega-cap company; however, looking at the overall opinions expressed by the credible authors and analysts tracked by the Nobias algorithm, a clear bullish trend has emerged after the stock’s recent sell-off.
Overall bias of Nobias Credible Analysts and Bloggers:
59% of recent articles published by credible authors have expressed a “Bullish” bias towards AMZN shares. 14 out of the 15 credible Wall Street analysts that Nobias tracks which have offered an opinion on Amazon stock believe that the company’s shares will increase in value. Right now the average price target being applied to AMZN shares by credible analysts is $171.21. Compared to Amazon’s current share price of $100.77, this represents upside potential of approximately 69.9%.
Disclosure: Nicholas Ward is long AMZN. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.