With Amazon (AMZN) shares down by 49% across 2022, it’s clear investors have been turning away this year. The ecommerce giant has been affected by the adverse macro conditions while its heavy investments have been weighing on the bottom-line.
As such, the company has been unable to deliver the goods in its quarterly financial statements. The mood around Amazon has soured to such an extent that J.P. Morgan’s Doug Anmuth thinks investor sentiment has reached a “multi-year low.”
The analyst cites several key areas investors are mulling over right now. These include: “1) AWS revenue deceleration & margin compression during a challenging macro environment; 2) Retail top-line growth & operating income as discretionary spending pulls back while AMZN works through its elevated cost structure & early headcount reductions; & 3) Overall profitability & FCF inflection as capex spend normalizes.”
These are issues also on Anmuth’s mind and with the “challenging macro environment” impacting both Amazon’s Retail business and AWS, the 5-star analyst believes it’s time for some estimate trimming.
For Q4, Anmuth now expects Net Sales of $143.4 billion, compared to $145.15 billion beforehand. Accounting for increased “macro pressure” on cloud spending, the new estimate also factors in AWS year-over-year growth of 21%, further declining from the mid-20’s% seen at the end of Q3.
And looking into next year, Anmuth has also lowered his expectations for 2023’s haul; anticipating AWS growth to decelerate to 17%, Anumth’s revenue forecast is lowered by ~2% to $563 billion (+11% YoY FXN). The 2023 OI (operating income) forecast is also reduced by ~21% to $19.4 billion (3.4% margin, up 68% YoY).
That said, while cognizant of the next few months’ “elevated cloud concerns and macro uncertainty,” Anmuth hasn’t turned into an AMZN bear, believing there is still a “significant secular shift toward e-commerce & cloud ahead.” And through 2023, the stock should also start to see the benefit of “easing retail comps.”
“Importantly,” adds Anmuth, “AMZN is focused on restoring higher profitability & FCF, with better fulfillment network throughput & headcount reductions.” As such, on the back of negative FCF during 2021 and 2022, next year, Anmuth expects FCF to “inflect to positive” $17 billion.
All in all, Anmuth rates AMZN shares an Overweight (i.e. Buy) although the price target is lowered from $145 to $130. Still, there’s upside potential of ~53% from current levels. (To watch Anmuth’s track record, click here)
The Street’s average target is a bit higher; at $140.03, the figure makes room for 12-month gains of ~65%. Rating wise, the stock claims a Strong Buy consensus rating, based on 34 Buys vs. 3 Holds. (See Amazon stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
