Amazon Analysts Preach Patience In Wake Of Slower AWS Growth: 'Management Laser-Focused On Returning The Company To Dynamic Growth'

Ecommerce and technology giant Amazon.com Inc AMZN reported first quarter financial results after market close Thursday.

The Amazon Analysts: Oppenheimer analyst Jason Helfstein has an Outperform rating and raises the price target from $125 to $130.

Morgan Stanley analyst Brian Nowak has an Overweight rating and a price target of $150.

Raymond James analyst Aaron Kessler has an Outperform rating and a price target of $130.

Piper Sandler analyst Thomas Champion has an Overweight rating and raises the price target from $123 to $130.

Wedbush analyst Michael Pachter has an Outperform rating and raises the price target from $125 to $129.

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

William Blair analyst Dylan Carden has an Outperform rating and no price target.

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The Analyst Takeaways: Helfstein said ecommerce gross profit was encouraging and helps offset lower AWS growth, leading to a price target increase.

“Reducing ‘24E revenues 1% on ecommerce and AWS, offset by 3% higher ecommerce gross profit, which more than offsets 9% lower AWS EBIT and results in overall EBIT 1% higher,” Helfstein said.

Nowak encourages investors to “stay patient” and focus on the long term when it comes to Amazon.

The analyst sees AI integration leading to faster growth and retail efficiencies improving alongside the slowing growth of AWS.

“We remind investors our long-term view about AWS’ ability to drive and benefit from the $2.5 trillion + public cloud opportunity. Stay patient,” Nowak said.

Cloud growth could increase faster with the integration of artificial intelligence initiatives, Nowak said.

Kessler said Amazon saw strong advertising growth and improved retail margins in the backdrop of a softer outlook for the AWS cloud segment.

“Amazon reported modest 1Q upside with improved retail margins and robust ad growth driving operating income upside,” Kessler said. “We continue to expect AWS growth to stabilize in the 10% range and comps materially ease in 2H23.”

Going forward, Kessler expects Amazon to see long-term ecommerce growth, show leadership in the cloud sector, accelerate advertising growth, and see increased productivity for the retail segment.

Champion called the first quarter from Amazon “solid” despite the weaker AWS growth.

“AMZN 1Q results were mostly positive, but AWS QTD growth was weaker than expected and shares were down slightly after hours,” Champion said.

The analyst said that while bears will highlight the slower AWS growth, items like improved profitability, favorable unit growth and lower costs shouldn’t be overlooked.

“Upbeat CEO Jassy again appeared on the call, and we see management laser-focused on returning the company to dynamic growth.”

Pachter raises the price target for Amazon shares after a quarter that saw “good, not great results.”

The analyst said the quarterly results were better than expected and guidance was also better than many had been fearing, even with weakened growth for the AWS segment.

“Given the companies favorable high margin mix of AWS, advertising, and third party seller services we believe that once inflation is in check and recession fears are behind us, Amazon is well positioned to continue to deliver above consensus profitability,” Pachter said.

Pachter said it was encouraging to see Amazon show growth for several sectors despite global weakened advertising demand, tightened budgets for IT division, and consumers spending less.

Martin said Amazon results came in above expectations and “cost-cutting was better than expected.”

The analyst questions how much Amazon will have to spend to increase its artificial intelligence initiatives.

“Large language models (ie. Generative AI) will cost billions for both training and inference capabilities, and AMZN expects to improve all of its products, and to create new products for enterprises and consumers that don’t exist today,” Martin said.

The analyst said Amazon has a strategy to grow its grocery division alongside its ownership of Whole Foods, which could mean building or buying existing companies.

Carden said the profitability from Amazon was encouraging, with North American retail leading the way.

“On profitability, management cited improvements in operational efficiency across its network. Note that the company moved to a decentralized fulfillment model, with eight interconnected regions across the U.S., which should continue to cut down on delivery cost and time,” Carden said.

Carden said that compared to rival Microsoft Corporation MSFT and its Azure cloud segment, Amazon is more exposed to high-growth technology firms that may need to rethink spending.

“We think Microsoft’s advantage in AI is also likely having a greater halo impact on the cloud business.”

AMZN Price Action: Amazon shares are down 4.4% to $104.94 on Friday.

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