Case Study: Amazon (AMZN) stock according to high performing analysts
Key Points
Performance
Amazon shares fell by 3.24% this week, pushing their year-to-date gains down to 22.87%. This compares favorably to both the S&P 500 and the Nasdaq Composite Index, which are up by 9.03% and 17.71%, respectively, on a year-to-date basis.
Event & Impact
Amazon posted its first quarter results this week, beating consensus estimates on both the top and bottom lines. During Q1, AMZN’s revenue totaled $127.4 billion, beating Wall Street’s consensus estimate by $2.85 billion. Amazon’s Q1 non-GAAP earnings-per-share came in at $0.31, which was $0.11/share above consensus estimates.
Noteworthy News:
Amazon’s year-to-date rally shows bullish sentiment attached to shares; however, the stock sold off this week on the news that its AWS cloud segment continues to produce slowing growth. Amazon trades at a high valuation multiple (its forward price-to-earnings ratio is 67x), and therefore, decelerating growth has the potential to result in significant multiple compression.
Nobias Insights
52% of recent articles published by credible authors focused on AMZN shares offer a “neutral” bias. Six out of the six credible Wall Street analysts who cover Amazon believe that shares are likely to rise in value. The average price target applied to Amazon by these credible analysts is $148.17, which implies upside potential of approximately 40.5% relative to the stock’s current share price of $105.45.
Bullish Take Howard Smith, a Nobias 4-star rated author, said, “The company itself forecasts overall sales will continue to grow. It estimates second-quarter revenue will increase between 5% and 10% versus the prior year period. Long-term investors might want to take advantage of today's reaction to buy, or add, shares.”
Bearish Take The Value Portfolio, a Nobias 5-star rated author, stated, “The company is facing competition across the board with all of its key businesses. Incredibly deep pocketed competitors such and Google and Apple are stealing the company's lunch. With a $1.1 trillion market cap, the company needs substantial profits to justify its valuation, and we don't see a path for it to accomplish those, making it a poor investment.”
AMZN Apr 2023
Amazon (AMZN) was one of several big-tech stocks that reported quarterly earnings this week. Companies like Microsoft (MSFT) and Meta Platforms (META) posted results which beat Wall Street’s expectations, causing them to rally post-earnings.
This week, Microsoft was up by 8.24% and Meta shares rose by 12.60%. However, Amazon didn’t follow along this same path. When it reported Q1 results Amazon beat on the top and bottom lines; however, the company’s pace of growth continued to slow down which caused fear in the market.
AMZN shares dipped by 3.24% during the last 5 trading sessions; however, this drop adds to what the credible Wall Street community sees as an attractive buying opportunity.
Bullish Nobias Credible Analysts Opinions:
Vidhi Choudhary, a Nobias 4-star rated author, published a report at Modern Retail this week which broke down Amazon’s first quarter results. Choudhary started, looking at Amazon’s top-line. She said, “Amazon’s revenue in the first quarter was $127.4 billion, a 9% year-over-year increase.”
Choudhary also touched upon Amazon’s bottom-line success, stating, “The company swung to a profit of $3.1 billion compared to a loss of $3.8 billion during the same period last year.” Looking at the company’s different operating segments, Choudhary wrote:
Services revenue, which includes the company’s advertising business and its cloud business called Amazon Web Services, cumulatively rose 17.3% to $70.3 billion from roughly $60 billion in the same period a year ago.
Amazon’s e-commerce sales remained flat as online store revenue stood at $51 billion at the three month period ending March 31.
One of the biggest drivers of Amazon’s growth continues to be its advertising business, which grew 21% year-over-year increase to $9.5 billion from $7.8 billion.
Revenue growth for other key divisions like AWS increased 16% year-over-year to $21.3 billion but remained flat compared to the previous quarter on a sequential basis.
Meanwhile, revenue from Amazon’s physical stores including Whole Foods rose 7% year-over-year to $4.8 billion.
She notes that while there was positive growth throughout Amazon’s Q1 report, the rates of growth are slowing compared to historical results. This concerned investors this week, causing AMZN shares to fall.
Overall, Choudhary concluded that these growth struggles may be here to stay, predicting that Amazon has a difficult year ahead of it. She wrote, “The e-commerce giant faces challenges like a weak consumer sentiment, slower e-commerce shipments and broader macroeconomic volatility as it focuses on efficiency efforts to drive profitability.”
Howard Smith, a Nobias 4-star rated author, published an article at the Motley Fool this week titled, “Why Amazon Stock Dropped After Earnings”. He said, “It's all about the cloud. At least, that's how investors are reacting.”
Smith also noted that Amazon shares ran up by roughly 7% into earnings, meaning that shares may have been pricing in a bigger beat. “But investors concluded that run-up was excessive after the company reported that its Amazon Web Services (AWS) cloud segment grew revenue by just 16% year over year. “That may sound positive on the surface, but it compares to 20% year-over-year growth in the fourth quarter of 2022 and 37% in the first quarter last year,” Smith added.
Regarding the slowing cloud growth, Smith said, “That has left investors wondering where the growth deceleration will bottom out, as Microsoft's Azure and other competitors presumably are gaining market share.”
Overall, though, he offered a bullish takeaway. Smith concluded, “The company itself forecasts that overall sales will continue to grow.” It estimates second-quarter revenue will increase between 5% and 10% versus the prior year period. “Long-term investors might want to take advantage of today's reaction to buy, or add, shares.”
Bearish Nobias Credible Analysts Opinions:
The Value Portfolio, a Nobias 5-star rated author, published an article on Amazon after its Q1 results this week at Seeking Alpha, titled, “Amazon: The Gravy Train Is Over”. Like Choudhary, they highlighted the company’s operating results. However, The Value Portfolio’s focused was on profitability, rising competition, and ultimately, poor shareholder returns. They wrote, “The company's earnings don't account for continued shareholder dilution.”
“Over the past year,” The Value Portfolio said, “the company's outstanding shares increased by 171 million shares. At just under $110/share, that means that the company added almost $19 billion in dilution. The company still has hundreds of millions of stock-based awards outstanding, and that number as increased YoY, so we expect dilution to continue.” “The largest risk to our thesis is the company's ability to drive additional shareholder returns as it decides to invest less in its business,” they added.
The Value Portfolio concluded, “Amazon is overvalued.” They continued, “The company is facing competition across the board with all of its key businesses. Incredibly deep pocketed competitors such and Google and Apple are stealing the company's lunch. With a $1.1 trillion market cap, the company needs substantial profits to justify its valuation, and we don't see a path for it to accomplish those, making it a poor investment.”
In an article that she published at Business Insider this week, Shanthi Rexaline, a Nobias 4-star rated author, highlighted post-earnings commentary by a notable Wall Street analyst regarding AMZN shares. She touched upon post-earnings commentary provided by Deepwater Asset Management's Gene Munster. She wrote, “Calling Amazon a "great company," Munster said Deepwater, a fund management firm he co-founded, does not own Amazon stock. There are other companies to own to gain outperformance, he added.”
Rexaline continued, “He, however, sees things changing by the middle of the year. "What keeps me up at night not owning AMZN: The company’s growth rates should start to improve in the back half of this year," he said.” She wrote, “Munster also delved into the weak AWS performance. Management commentary that the cloud business is tracking down 500 basis points in April suggests 11% growth for AWS in the June quarter, the tech analyst said. This would mean the company could undershoot the Street estimate for 11% growth, he added.” Munster believes that this ongoing weakness could give him an opportunity to add shares of this ‘great company’ to his investment portfolio.
Munster isn’t the only Wall Street analyst who is bullish on AMZN over the long-term. UBS analyst, Lloyd Walmsley, a Nobias 4-star rated analyst, raised his price target on AMZN shares after the company posted earnings this week.
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.
According to the Fly on the Wall, “UBS raised the firm's price target on Amazon.com to $130 from $125 and keeps a Buy rating on the shares. The firm expects AWS to continue to decelerate into Q2 but start to recover in terms of sequential dollar growth in Q3, and UBS sees the retail margin story intact, though moving slightly slower than initially hoped”, the analyst tells investors in a research note.
Overall bias of Nobias Credible Analysts and Bloggers:
Looking at the sentiment expressed by the credible author and credible Wall Street analyst communities that are tracked by the Nobias algorithm, we see a startling divergence. 52% of the articles recently published by credible authors expressed a “bullish” bias towards shares. However, 100% (six out of six) Wall Street analysts that Nobias tracks who cover AMZN shares believe that they’re likely to rise in value.
After its post-earnings dip, AMZN trades for $105.45. Currently, the average price target being applied to AMZN shares by the credible Wall Street analysts that Nobias tracks is $148.17. That represents upside potential of approximately 40.5% relative to Amazon’s share price.
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.