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Amazon to face challenges as COVID-fueled growth normalizes

Published 01/24/2023, 10:08 AM
Updated 01/24/2023, 10:13 AM
© Reuters.  Amazon (AMZN) to face challenges as COVID-fueled growth normalizes

By Michael Elkins 

Telsey Advisory Group reiterated an Outperform rating on Amazon.com (NASDAQ:AMZN) but cut the price target on the e-commerce company to $125.00 (From $140.00) ahead of its 4Q22 earnings release scheduled for Thursday, February 2nd.

Telsey reduced their 4Q22 and 2023 outlook on the company to reflect a more challenging consumer and corporate spending environment. The company is facing headwinds in the form of a normalizing market after two years of elevated growth fueled by COVID-19. They also face unfavorable FX trends, and are slowed by ongoing strategic investments.

As indicated on the October 27 earnings call, Amazon’s business slowed as 3Q22 progressed—both in retail (particularly International) and AWS—and these trends continued into 4Q22.

Telsey analysts write, “Overall, we believe Amazon should still continue to gain market share by leveraging its sticky Prime member base, small business relationships, technological edge, and retail consolidation. Amazon's focus on newer business—grocery, pharmacy, fashion, home, private brands, third-party, same-day/one-day delivery, Amazon Logistics, and telehealth—should make Amazon more valuable. The strong growth and profitability of AWS, as well as its media and advertising offerings, should continue to outperform the company average and support Retail.”

In general, they expect the business trends to improve in 2H23, especially profitability, with anticipated gains from recent proactive actions, including a focus on higher margin categories, lower spending on logistic and fulfillment centers, closing of unprofitable divisions, management of labor costs, and lapping COVID-19 related expenses.

Telsey lowered 4Q22 sales growth estimates to 5.9% from 7.6%, to $145.6 billion vs. the consensus of $145.8B and guidance of $140B-$148B. The new 2023 EBITDA estimate of $80.7B is down from $83.0B previously.

Shares of AMZN are down 0.93% in mid-day trading on Tuesday.

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