To great fanfare and anticipation, Amazon (AMZN) released fourth-quarter earnings last Thursday. While most companies and investors would be thrilled with the numbers posted, the e-commerce giant doesn’t play by the same rules as most other companies. While revenue grew 20% year-over-year in its most pivotal quarter (holiday season), this represents the slowest quarterly growth rate for the company in more than three years. Adding to concern is that Amazon’s growth didn’t even hit 20% — the overall 20% growth was carried by its AWS segment, which grew 45%. However, as AWS continues rising, so does profit: Amazon’s e-commerce segment has historical shown low profitability, so the company relies heavily on AWS profit. But what investors were most concerned about — and the primary factor to Amazon’s stock dropping post-market — is its guidance for this quarter, which reports lower revenue than Wall Street expectations.
Nevertheless, Monness analyst Brian White remains bullish on the stock, maintaining his Buy rating and $2,300 price target, which implies about 42% upside from current levels.
While White was impressed with Amazon’s Q4 numbers, the analyst concedes that “revenue growth is decelerating and Amazon’s 1Q:19 outlook lacked the juice that the optimists may have been yearning for.” He continues, saying that there “were some caveats around 2019. First of all, after major investment absorption in 2018, it appears unlikely that Amazon can replicate this in 2019. Our take is that the strong growth in higher margin areas such as AWS and advertising can help offset any potential incremental investment this year. Moreover, we believe the company remains committed to running an efficient organization.”
A growing concern among investors is Amazon’s international businesses, specifically India. White says that “new e-commerce rules in India are anticipated to impact Amazon’s sales in the country; however, the company did its best to reflect any expected softness in its 1Q:19 outlook.” He still thinks India, which remains a major market for Amazon and other companies, “could be a wildcard in 2019.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Brian White has a yearly average return of 21% and a 70% success rate. White has a 0.6% average loss when recommending AMZN, and is ranked #30 out of 5,144 analysts.
Bottom line: Amazon didn’t have a bad quarter — it actually had a very strong quarter. But when compared against past quarters, this wasn’t their best showing. Wall Street is nevertheless optimistic on the company moving forward. TipRanks tracking of 35 analyst ratings on the company shows a consensus Strong Buy, with 34 analysts recommending Buy and only one recommending Hold. The average price target is $2,115.47, representing a 28% upside from current levels. (See AMZN’s price targets and analyst ratings on TipRanks)