10 Amazon Analysts Lower Price Targets: How The Street Is Reacting To Disappointing Q3 Earnings, AWS 'Surprise'

Here’s what analysts are saying about Amazon.com Inc's AMZN third quarter financial results, fourth-quarter guidance and why they’re lowering price targets.

The Amazon Analysts

• Telsey analyst Joseph Feldman has an Outperform; lowers the price target from $150 to $140.
• Needham analyst Laura Martin has a Buy rating; lowers the price target from $175 to $120.
• Rosenblatt analyst Barton Crockett has a Neutral rating; no price target.
• Raymond James analyst Aaron Kessler has an Outperform rating; lowers the price target from $164 to $130.
• RBC Capital Brad Erickson has an Outperform rating; lowers the price target from $175 to $135.
• Benchmark analyst Daniel Kurnos has a Buy rating; lowers the price target from $160 to $125.
• Mizuho Securities analyst James Lee has a Buy rating; lowers the price target from $155 to $135.
• Truist analyst Youssef Squali has a Buy rating; lowers the price target from $170 to $160.
• Morgan Stanley analyst Brian Nowak has an Overweight rating; lowers the price target from $175 to $140.
• Bank of America analyst Justin Post has a Buy rating; lowers the price target from $157 to $137.

Related Link: Why Etsy Shares Are Diving Following Amazon's Earnings Report

The Amazon Takeaways

The third quarter results from Amazon were mixed and guidance was weaker than anticipated, Feldman explained, citing how macro pressure could take longer than expected for the Seattle company’s sales and profitability to recover.

“We continue to believe Amazon’s ecosystem (driven by highly loyal Prime members) should enable the company to remain a share gainer over time,” Feldman said.

Martin called out Amazon’s use of capital and its various business lines.

“What has been most disappointing about AMZN in FY22 is that it is taking billions of dollars of new operating income from Cloud and Advertising and using it to cut prices in their core ecommerce business, rather than reporting higher margins and ROICs,” Martin said.

This use of capital could be preventing shares from appreciating, she added, calling it “working for nothing.”

Amazon may no longer be a “safe harbor business” during tough macroeconomic times, according to Crockett. “Amazon’s $140 billion to $148 billion guide for 4Q22 is growth of only 2% to 8%, despite a second Prime Day in the quarter, reflecting the weakening trend,” he added.

Amazon noted a strong start to the quarter from Prime Day and credited strong Prime sign-ups to the premiere of “The Lord of the Rings: the Rings of Power." Yet, Crockett doesn’t see the Prime growth in the results.

Kessler cited e-commerce growth, cloud momentum, improving margins and advertising growth as reasons to remain bullish on Amazon going forward.

“While we expect a more challenging growth outlook near-term, we remain positive on long-term growth for both retail and AWS with improving margins over time as Amazon focuses on productivity improvements,” Kessler said.

However, the slower growth for AWS could weigh heavily on the bull case for Amazon shares, according to Erickson, who was surprised by the performance of the AWS segment of the company. The fourth quarter guidance from Amazon reflects a worsening macroeconomic outlook, he explained.

“AWS is finally seeing pressure, retail has slowed to start out Q4 and while the company’s progressing against its margin leverage initiatives, the revenue softness significantly mutes the margin expansion story for the foreseeable future,” Erickson said.

“Thursday Night Football” and “The Rings of Power” could increase Prime subscriber sign-ups, which is “encouraging,” he added. “We think the incremental Prime subs is a net positive that should provide long-term benefits, particularly internationally.”

Fourth quarter guidance from Amazon could put a damper on holiday expectations after credit card companies and the travel sector was pointing to an optimistic outlook, Kurnos said.

“Perhaps we all simply ignored the much worse conditions abroad and/or failed to spend enough time contemplating why advertisers seemed to be leading the charge rather than reacting to the situation on the ground,” Kurnos said.

The analyst believes fourth quarter guidance could be easy to hit and Amazon is saying the right things concerning cost cuts.

“We know Amazon is not a bellwether for the space, but we still expect them to be a share gainer this holiday period and, assuming consensus comes in materially, would consider slowly accumulating on weakness.”

For Lee, the slowdown in AWS revenue growth was "the biggest surprise," and "its margin impact on OPI guidance, which was about 15% below expectations."

A slowdown in growth for ecommerce was expected, but analysts apparently did not anticipate the lowered growth of the cloud segment for Amazon.

“Customers are looking to control costs by pausing their workloads or shifting to lower-cost services," he added.

Squali calls Amazon a long-term winner but acknowledges the macro headwinds.

“We view these challenges as temporary and see AMZN with the power of Prime, AWS leadership and rapidly growing ad business as best positioned to ride these multiple secular growth trends in FY23/beyond,” Squali said.

Nowak said Amazon could gain market share during the economic downturn. “While the slowdown is likely coming, in our view, nothing has structurally changed about AMZN’s retail and AWS long-term positioning and opportunity,” Nowak said.

“In fact, as we have seen in past downturns, we would not be surprised to see AMZN’s leading retail service lead to retail market share gains,” he added.

Amazon’s results and guidance could mean a recession has already arrived, Post said in an updated note. Fourth quarter guidance implies 13% quarter-over-quarter growth, which could be the lowest on record for Amazon.

“The holiday revenue outlook was surprisingly weak, limiting margin expansion, but this outlook follows a 3Q in which Amazon gained significant share, and we expect continued share gains in 4Q,” Post added.

AMZN Price Action: Amazon shares are down 9% to $100.71 on Friday.

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