By Senad Karaahmetovic
Shares of Amazon.com (NASDAQ:AMZN) are down about 13% in pre-open Friday trading after the e-commerce titan reported weaker-than-expected Q3 results and guidance.
Amazon shares initially slumped 20% in after-hours trading before recovering a portion of the losses. Goldman Sachs analysts said the 20% move lower in after-hours trading was 'well overdone."
Amazon reported a Q3 EPS of $0.28 per share on revenue of $127.1 billion, which compares to the consensus of $0.22 on revenue of $127.76 billion. Overall, sales rose 15% compared to the year-ago period while the operating income came in at $2.5 billion with the company saying FX headwinds resulted in a $5 billion hit in Q3.
Another major issue with Amazon’s Q3 report is that AWS’ revenue rose 27% to $20.54 billion, lower than the Bloomberg consensus of $21.01 billion. Excluding FX changes, AWS net sales were +27%, much lower than the 31.9% consensus and a major slowdown compared to last year’s 39% growth rate.
Amazon CEO Andy Jassy said the company feels “confident that we’re ready to deliver a great experience for customers this holiday shopping season.”
Amazon shares were also hit by the weak Q4 guidance as the e-commerce giant expects its revenue to come in between $140 billion and $148 billion while the consensus stood at $155.1 billion. The operating income is seen at $2 billion (the midpoint), a significant miss compared to the average analyst estimate of $4.66 billion.
Goldman analysts said the results were “mixed” overall. For them, the major issue with Amazon is that the growth has begun to slow “before the margin narrative is repaired.” Still, they reiterated a Buy rating with a new price target of $165 per share (down from $175).
“We are unchanged in our long-term view of the potential for cloud computing (as evidenced by Amazon’s $104bn revenue backlog that grew +57% YoY) but acknowledge that economic conditions will likely produce slower than normal growth and margins in the coming quarters… We remain convinced in a multi-year operating income margin expansion story for Amazon on the back of improved eCommerce margins, less International losses & higher profit margin mix contribution from AWS and advertising.”
Citi analysts cut the price target to $145 from $185 and pointed to a “slowing consumer and AWS demand” while high inflation continues to pressure margins. They told clients to “take advantage of any material pull-back in shares.”
“The debate going forward is likely to be around margins, which we believe can improve throughout 2023 as Amazon returns to positive FCF and note management has prioritized AWS capex spend over FC and transportation services this year, is culling products, and has implemented hiring freezes across certain parts of the organization,” the analysts wrote in a client note.
JPMorgan analysts also cut the price target on AMZN shares as they went to $145 from $175 per share. While they took note of weaker-than-expected results and guidance, the analysts said the report was “not thesis-changing.”
“We continue to believe that AMZN is on track to improve profits in 2023, w/FCF inflecting, albeit at lower levels than previously expected. Accordingly, while the degree of macro impact going forward is unclear, we do not believe the current pressures are thesis-changing.”