Analyst's Top Pick: AWS Revenue, E-commerce Expansion & Ad Cash Flow Put Amazon in Limelight

Credit Suisse analyst Stephen Ju maintains Amazon.com Inc AMZN with an Outperform rating, lowering the price target from $150 to $140.
The analyst previews Amazon's 1Q23 results, which it will report on April 27.
Ju rolls through several updates to his model, based primarily on the more granular annual disclosure for CapEx, ad/promo costs in the Sales and Marketing line, and the latest steps to reduce headcount.
The analyst reduced his pro forma EPS estimates for FY23 to $3.26, down from $3.45, and FY24 to $4.17, down from $4.98.
Given the ongoing cyclical headwinds, Ju modestly lowered his AWS growth expectation for 2023.
In line with the analyst's projection for AMZN's e-commerce business, he assumed a cyclical recovery in 1Q24, marking what should be a gradual reacceleration of revenue growth.
With that in mind, he notes that his nominal dollars of revenue growth for 2023 are $7.1 billion and 2024 at $8.2 billion, effectively assuming a linear recovery.
He believes the optionality remains for nonlinear growth and recovery as absent the cyclical pressures. He believes Cloud adoption has entered a steeper part of the S-curve of adoption. Also, he notes Amazon's CEO Andy Jassy has highlighted that ~90% of Global IT spending is still on-premise, which also points toward the significant white space ahead for AWS.
AMZN shares remain his top pick. The re-rating reflects e-commerce segment operating margin expansion as it grows into its more extensive infrastructure, optionality for faster-than-expected FCF growth vis-à-vis its advertising segment, and upward bias to AWS revenue forecasts and likely more moderate deceleration path.
Price Action: AMZN shares traded lower by 1.82% at $104.28 on the last check Tuesday.

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