Amazon (AMZN) 3Q:18 Earnings at First Glance; Top Analyst Maintains Outperform on the Stock

Amazon (AMZN) honeymoon with Wall Street hit a big bump on Thursday afternoon, when the e-commerce giant reported disappointing third-quarter results. As of this writing, Amazon shares are tumbling nearly 7% to $1,650.

You typically can have confidence in the consensus opinion. However, with the Amazon earnings report, the consensus was wrong: Jeff Bezos’ empire just didn’t come through. Specifically, net sales for the quarter were $56.6 billion, slightly-below consensus of $57.1 billion, as services revenues from AWS and Other were partially offset by a continued slowdown in online stores (i.e., 1P) revenue growth. Importantly, Amazon forecasted lower-than-expected net sales for the current quarter, predicting sales of between $66.5 and $72.5 billion, which were well-below consensus of $73.8 billion. GAAP operating income guidance midpoint of $2.8 billion was also well-below consensus $3.87 billion.

Baird’s top analyst Colin Sebastian commented, “At first glance, no change to our overall constructive view, although strong margins were offset to some degree by softness in International segment/paid units; holiday guidance also a little weak – though not unusual. Revenue performance was somewhat mixed, with higher-margin segments (AWS, Other/Advertising) growth holding steady at +46% and +123% ex-FX respectively (vs. +49% and +129% Y/Y in 2Q18), while Subscription Services revenue increased 52%, also holding steady (+55% Y/Y in 2Q18), reflecting the benefits from the recent Prime price increase (and potential tailwind from shift to straight-line revenue recognition). North American margins expanded ~540 bps Y/Y, a key positive, while international losses continued to moderate despite significant investments in India (operating margin of -2.5% vs. -6.8% in 3Q17). As highlighted in our 3Q preview (link), investor focus likely shifts to softer-than-anticipated holiday revenue/ profitability guidance (potentially driven by rising labor/shipping costs).”

As such, Sebastian reiterates an Outperform rating on Amazon shares, with a price target of $2,100, which represents a potential upside of 18% from where the stock is currently trading.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Colin Sebastian has a yearly average return of 23.6% and a 68% success rate. Sebastian has a 45% average return when recommending AMZN, and is ranked #18 out of 4887 analysts.

Net-net, Amazon has a lot of disappointed bulls out today as the stock plummets. According to TipRanks, out of 41 analysts polled in the last 3 months, 40 rate Amazon stock a Buy, while only 1 recommends a Hold. The 12-month average price target stands at $2,198.86, marking a nearly 23% upside from Thursday’s closing price. (See AMZN’s price targets and analyst ratings on TipRanks)


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