Amazon (AMZN) received several mentions Tuesday from Wall Street analysts covering a variety of topics. Cautiously optimistic comments about initiatives management is taking to cut costs and invest at levels commensurate with earnings dynamics and a slowdown in the global economy should start to ease pressure on margins. Amazon’s stock, which is still down about 40% year-to-date, is up about 15% since last Thursday’s surge, along with the broader market rally. After the closing bell on Oct. 27, the stock was flat after reporting a strong quarter and weak guidance. Let’s hope the stock continues on its path to recovery. Morgan Stanley views Amazon as the frontrunner, along with Alphabet (GOOGL), as the online retail and cloud giant the preferred way to play in the megacap space with overweight (buy) ratings. pointed out. Analysts in the country, however, remain cautious on the Meta Platform (META) due to a “growing structural question mark over the META moat” and current capex spending. It focuses primarily on Amazon while including alphabetical and meta commentary from the memo for reference. weakening and economic headwinds remain cautious. These concerns have led us to “moderately lower” our estimates for Amazon, Alphabet and Meta. Morgan Stanley has kept its price target on Amazon at $140 per share. That’s up about 40% from Monday’s close. Analysts currently model him growing 5% in US e-commerce in 2023, down from his previous 10%. Analysts have lowered their price targets for Alphabet and Meta. GOOGL has gone from $125 to $120 per share, with about 25% upside. The meta went from $105 to $100, down about 12% from Monday’s close. From a top-down perspective, Morgan Stanley argued that Amazon was “strategically positioned” to gain market share in e-commerce and enterprise spending “through/after the recession.” From a bottom-up perspective, analysts have admitted that Amazon, along with other big-cap tech companies, are finally taking their medicine. For Amazon, that refers to a broad cost-cutting review, which plans to lay off about 10,000 employees this week, according to The New York Times. Based on an estimated mid-range salary range, headcount reductions could reduce costs by approximately $2.75 billion. Sure, it’s a lot of money, but remember, relatively speaking, this is only about a 1% reduction in Amazon’s 1.54 million employees worldwide. Earlier this month, Amazon extended a hiring freeze to the company’s entire workforce. MoffettNathanson’s view updates investor views on the broader e-commerce landscape, stating that “because the Internet’s algorithms create a self-fulfilling prophecy of continued share loss once started,” Amazon-like He says he prefers companies that capture market share. Of course, this means shareholders will continue to earn. Before digging in, analysts there said they “disagree with the bearish case of e-commerce penetration peaking” because online shopping is more convenient and often cheaper than shopping in brick-and-mortar stores. said. A website is inherently easier than navigating from one physical store to the next. When it comes to share losers, analysts called Covid a “double-edged sword” as pure names like Wayfair and Chewy became less competitive as the pandemic forced traditional brick-and-mortar players . They were taking business away from them to accelerate their investment in e-commerce infrastructure. Of course, Amazon is far from pure play, offering the widest selection of inventory of any retailer in the world, whether online or in physical stores. In that case, scale and speed of fulfillment are required, two areas Amazon has over-invested in recent years, he said. capacity. In considering what a great marketplace is, the analyst highlights his Etsy, a highly fragmented global market of 7.5 million artisans and creators under his single umbrella. He has been favorably viewing his platform online for his handmade items that he has successfully concentrated on. But they called his Amazon business model the gold standard. This is because a Prime membership drives customer loyalty, encouraging regular purchases while keeping retention costs low. Additionally, Amazon’s direct traffic rate is best-in-class, resulting in the lowest ad spend among all its peers. This direct his traffic also allowed the company to build an advertising business that generates nearly $40 billion annually. $9.5 billion in the third quarter alone. MoffettNathanson said about the future: [earnings before interest and taxes] Estimates fell and capital intensity exceeded expectations. Barclays view Barclays believes Amazon offers favorable risk/reward at current levels as retail operating margins improve and Amazon Web Services stabilizes in 2023. on the cloud as an effort to align costs with customer demand. Ultimately, the most attractive part of moving to the cloud is converting fixed costs into variable costs. was in Amazon India. Analysts said both Amazon and Walmart-owned Flipkart were growing their top lines in the low-30% range as of March 2022, with about 30% heading into 2023. It points to 20% to 25%. But even better, they believe the pace of operating losses is improving.According to Barclays, Amazon India accounts for 4.4% of international retail sales and 23% of international operating profit losses. In retail, they also noted from a low base that “AWS growth in India is accelerating nicely.” Note that AWS’s profit margin profile is much better than retail. As of March, AWS India generated $1.2 billion in revenue, growing 65% annually on a foreign exchange neutral basis, his fastest growth since 2019. Recall that India is the second most populous country in the world and after China she is the second most populous country. ahead of the United States. The club’s take Looking at all these updates as a whole, Amazon is stuck with the “show me” story following its recent quarterly results. I would have liked to have sold the stock at a higher level, but in hindsight it’s 20/20 and at this point I think the fundamentals will improve going forward. As we noted in last month’s earnings analysis, we believe management is ready to make the tough choices necessary to wind down the business. Free cash flow should improve significantly as cost-cutting efforts improve margins. Stock prices should rise as a result. We believe current levels offer attractive risk/reward for long-term investors due to improving fundamentals, but more patience will be required. At this point, we prefer names whose spending is already more in line with the operating environment and whose macroeconomic backdrop is more supportive. Additionally, we tend not to like chasing big moves like these days, which is consistent with our decision to cut Microsoft (MSFT) stock earlier this week. (Jim Cramer’s Charitable Trust is long AMZN, GOOGL, META, and MSFT. See full list of stocks here.) Subscribers to Jim Cramer’s CNBC Investing Club know that Jim is trading Receive trade alerts before you do. 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An Amazon Prime truck crosses the George Washington Bridge on Interstate 95 during the two-day “Prime Early Access Sale” shopping event for Amazon members on October 11, 2022 in New York.
Mike Seeger | Reuters
Amazon (AMZN) received several mentions Tuesday from Wall Street analysts covering a variety of topics. Cautiously optimistic comments about initiatives management is taking to cut costs and invest at levels commensurate with earnings dynamics and a slowdown in the global economy should start to ease pressure on margins. reinforces our conviction that
