Amazon (AMZN) Q3 Earnings: What the Analysts Are Saying
Amazon (AMZN) - Get Free Report disclosed gloomy results for its third quarter. And its fourth-quarter guidance made analysts even more pessimistic about the company’s performance in the short term.
The result: Amazon's stock lost 22% of its value, dropping to $90 per share within a week.
Still, Wall Street thinks Amazon’s struggles are temporary issues that will sooner or later fade away.
Are investment firms way less bullish than they were two weeks ago? Absolutely. According to TipRanks, the average price target on AMZN fell from $170 to $140 after the company released its results.
Yet $140 is still a very bullish target because it implies a 60% upside. Here's why Wall Street still recommends Amazon's stock.
Figure 1: Amazon Q3 Earnings: What the Analysts Are Saying
SOPA Images/LightRocket via Getty Images
Is There a Crack in Amazon's AWS Armor?
Amazon had hoped to resist the tough macroeconomic conditions by leveraging its pricing power. But that hasn't worked.
As a result, Wall Street turned its attention to the company's most profitable segment: Amazon Web Services (AWS). The bad news is AWS might be the next victim of the macroeconomic headwinds.
According to Mizuho Securities’ James Lee, the cloud computing segment’s slowdown was "the biggest surprise" of the quarter. AWS presented lower-than-30% growth for the first time since the fourth quarter of 2020.
If Amazon’s cash cow keeps losing traction amid rampant inflation, Amazon's stock will likely keep bleeding.
RBC Capital’s Brad Erickson seems to agree. As he stated, “AWS is finally seeing pressure, retail has slowed to start out [the fourth quarter], and while the company’s progressing against its margin leverage initiatives, the revenue softness significantly mutes the margin expansion story for the foreseeable future.”
Wall Street Still Thinks Amazon Is a Long-Term Winner
Truist’s Youssef Squali still puts his faith in Amazon for the long run. He maintains the company is a long-term winner, despite the macroeconomic woes.
“We view these challenges as temporary and see AMZN with the power of Prime, AWS leadership, and rapidly growing ad business as best positioned to ride these multiple secular growth trends in [fiscal year 2023 and] beyond,” Squali wrote.
Morgan Stanley’s Brian Nowak seems to agree. He believes Amazon will remain an e-commerce and cloud titan for the long term.
“While the slowdown is likely coming, in our view, nothing has structurally changed about AMZN’s retail and AWS's long-term positioning and opportunity,” he wrote.
Lower Price Targets, Higher Upside
Although Wall Street analysts lowered their price targets on AMZN, the implied upside is higher. This means a potentially better opportunity for investors.
For instance, Truist lowered its price target from $155 to $135 after Amazon’s third-quarter earnings disclosure but raised its implied upside from 40% to 48%.
As the sell-off keeps affecting Amazon’s market capitalization in the short run and analysts believe the Seattle-based titan still preserves its fundamentals, bullish investors with an appetite for risk might find this a good opportunity to acquire some AMZN.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)
