Amazon.com Inc.’s stock experienced a significant drop of 5% on Wednesday, just one day prior to the anticipated announcement of its third-quarter results.
The company, identified as AMZN, -5.58%, currently faces a Federal Trade Commission antitrust lawsuit. Analysts are now raising questions about Amazon’s cloud business, especially after recent reports from Alphabet Inc.’s GOOGL, -9.51% GOOG, -9.60% Google and Microsoft Corp. MSFT, +3.07%. Wall Street is feeling uneasy following Google’s slowdown in its cloud business, as customers are primarily focusing on spending optimization.
In anticipation of Amazon’s upcoming report, which will focus on the company’s AWS business, Piper Sandler analyst Thomas Champion highlights that the results from Microsoft and Google suggest that “flattish” growth is more likely than a re-acceleration in the third quarter.
Key Points to Watch Out For
Analysts tracked by FactSet predict that Amazon will report earnings of 59 cents per share, compared to 28 cents per share from the previous year. Similarly, Estimize, a platform that gathers projections from hedge funds, academics, and others, also suggests an average projection of 59 cents per share in earnings.
According to the FactSet consensus, Amazon is projected to generate $141.5 billion in revenue, an increase from $127.1 billion the previous year. The Estimize contributors also expect the same revenue figure.
Over the past 12 months, Amazon’s stock has remained relatively flat. However, this year, the shares of Amazon have experienced a notable gain of 44%. In comparison, the S&P 500 (SPX) has risen by 9% in 2023.
Among the 55 analysts who cover Amazon’s stock and are tracked by FactSet, 52 analysts have buy-equivalent ratings, while three have hold ratings. On average, these analysts have set a price target of $172.87 for Amazon.
What to Watch For
Despite concerns related to the FTC and AWS, analysts overall hold an optimistic view of Amazon.
Oppenheimer’s Jason Helfstein considers Amazon as the “top large-cap pick.” This is due to Amazon’s exposure to a wealthier consumer base, its advertising opportunity, potential for margin improvement in e-commerce, reduced challenges for AWS, and recent underperformance relative to Alphabet and Meta Platforms Inc. (META) shares.
Scott Devitt, an analyst at Wedbush Securities, has a positive outlook on Amazon’s financial prospects. He believes that the company is better positioned than what investors fear. Additionally, Devitt anticipates catalysts such as increasing retail margins and accelerated growth for AWS against easing comparisons.