Amazon, Google Analyst Reduces FY23 Revenue Growth Forecasts As Sales Channel Indicators Point Towards Challenged Cloud Outlook

• Mizuho analyst James Lee reiterated Buy on Alphabet Inc GOOGL with a $135 price target.


• Lee maintained Buy on Amazon.com, Inc. AMZN with a $135 price target.


• Lee recently hosted Mizuho's FY23 Cloud Computing Outlook call with a leading IT consulting firm, which conducted a fourth quarterly proprietary CIO survey. 


• The CIOs were incrementally cautious heading into FY23 over a higher probability of a shallow recessionary scenario. Budget expectations were worse than the third quarter 2022 survey in all product categories except for infrastructure. 


• The leading indicators in the sales channel also looked increasingly challenging, including extended sales cycles, higher price concessions and increased competition with vertical customers. 


• In a shallow recession scenario, year-over-year cloud spending growth would decrease by about 16 points in FY23 vs. 9 points last quarter. 


• Lee expected most cuts to be in the application and automation categories. 


• Lee lowered his FY23E AWS revenue growth from 18% year-over-year to 17% vs. the consensus of 20% and reduced Google cloud revenue growth from 26% to 24%, below the consensus of 29%. 


• As a result, the analyst expected the stocks could be volatile in the near term with downward revision risks. 


• The re-rating reflected the analyst's optimism on the long-term fundamentals and recent efforts by both companies to reduce costs.


 

AMZN, GOOGL Price Actions: At publication Thursday, Amazon shares are down 2.12% at $93.34 and Alphabet (GOOGL) shares traded higher by 1.66% at $92.60.