Amazon's Retail Strength Outshines AWS Slowdown, Analysts Are Raising Price Targets

E-commerce giant Amazon.com, Inc. AMZN reported fourth-quarter financial results after market close Thursday. The results showed growth of the AWS cloud business and several hits on Amazon Prime Video helping boost subscriptions.

Analysts weighed in with their takes on the financial results.

The Amazon Analysts: Oppenheimer analyst Jason Helfstein had an Outperform rating and raised the price target from $130 to $135.

Morgan Stanley analyst Brian Nowak had an Overweight rating and raised the price target from $140 to $150.

Needham analyst Laura Martin had a Buy rating and a price target of $120.

Bernstein analyst Mark Shmulik had an Outperform rating and a price target of $125.

Related Link: Trading Strategies For Amazon Stock Before And After Q4 Earnings 

The Analyst Takeaways: Oppenheimer's Helfstein said the fourth-quarter revenue came in ahead of analysts’ estimates. Margins improving for the e-commerce business was a key highlight for the analyst. One concern for the analyst was a potential slowdown in the AWS business.

“AWS’s two past downturns lasted around one year, but it experienced strong growth post-recovery on increased customer adoption,” Helfstein said.

Prime Video content such as “Thursday Night Football” helped boost Prime sign-ups and drove a younger audience to the company, Helfstein added.

Morgan Stanley's Nowak highlighted improved efficiencies for Amazon in the fourth quarter, which led to a raise in the price target.

“Amazon results/guide showed a steep improvement in retail profitability, giving us more confidence in the scale-down efficiencies/profits ahead,” Nowak said.

The company’s AWS business segment had “near-term macro uncertainty,” according to the analyst.

The analyst noted improvements were seen in fulfillment costs and shipping costs.

“These improvements give us incremental confidence in AMZN’s retail earnings power as our ’23 retail GAAP EBT estimates increase by around $8 billion.”

Nowak said Amazon’s CEO Andy Jassy commenting on the company's long-term investments and logistics network were positives.

“We see this continuing to enable AMZN to develop the next legs of multi-year growth.”

Needham's Martin said Amazon’s product sales had “stagnated” and the company was getting help from its cloud and advertising segments to offset the weakness.

“We believe AMZN’s share price weakness is attributable in part to AMZN failing to pivot to a multi-constituency philosophy, whereby employees, shareholders and consumers are treated equally,” Martin said.

The analyst said Amazon was over-indexing its consumers, which leads to operating margins getting hurt. Martin also noted operating margins for Amazon were around one-third to one-half of what they were when Amazon founder Jeff Bezos was the CEO of the company.

Martin also said Amazon put clients first over shareholders with its AWS business. Jassy said AWS would help clients save money due to economic weakness.

“We think this is indicative of AMZN’s client-first approach that sacrifices Wall Street’s return on capital goals for investors.”

Bernstein's Shmulik saw a rocky road forward for Amazon’s retail business but kept an Outperform rating.

“The company still has its challenges — we’re still debating retail margins, content investment levels, the international strategy and where the floor is on AWS, but our conviction level in seeing the OI inflection this year has come up,” Shmulik said.

The cloud business grew 20% year-over-year, which shows a slowdown that Shmulik calls mostly “self-inflicted” with Amazon helping companies.

“We remain in the ‘when’ not an ‘if’ camp for a 2023 OI inflection.”

AMZN Price Action: Amazon shares are down 4.42%$ to $107.92 on Friday versus a 52-week price range of $81.43 to $170.83.

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