Amazon Analyst Reduces Price Target By 25% As AWS Cloud Business Tracks 'Meaningfully' Below Consensus Estimate

Amazon Inc. AMZN was among the worst-performing mega-cap stocks in 2022 by virtue of its nearly 50% plunge. An analyst at UBS recently took down his price target for the stock.

The Amazon Analyst: UBS analyst Lloyd Walmsley maintained a Buy rating and reduced the price target from $165 to $125.

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The Amazon Thesis: The consensus estimate for Amazon Web Services, or AWS, cloud service is "meaningfully too high," Walmsley said. The cloud market is deteriorating amid customer efforts to optimize or trim cloud spending, delays in new workload migration to avoid upfront costs and maturation of the market marked by slower growth of more difficult-to-migrate workloads, Walmsley said, citing UBS Software Team’s analysis.

The analyst, therefore, modeled “meaningfully” below-consensus topline growth of 18.4% year-over-year at AWS in 2023 and slower growth in 2024. Walmsley also reduced the fourth-quarter AWS revenue growth estimate to 21%.

Retail trends finished the year on a strong note, Walmsley said, citing U.S. Commerce Department data. Mastercard’s SpendingPulse data showed that U.S. e-commerce spending remained robust, with online sales growing 10.6% from Nov. 1 to Dec. 24, he added.

Walmsley said he is below consensus on retail revenues but higher on margins.

The analyst is of the view that the margin thesis is intact but thinks it will take time for the company to realize cost savings. The slower topline growth is largely priced in the stock, as it traded at a 10-year low valuation on EV/EBIT and EV/EBITDA, Walmsley added.

“Even on our lower ests and reduced target multiples, shares offer 46% upside to our PT and a risk/ reward skew of 3.5:1 upside/downside by our analysis,” Walmsley said.

Price Action: Amazon closed Wednesday’s session down 0.79%, at $85.14, according to Benzinga Pro data.

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