'Every rockstar needs a break': Here's what Wall Street is saying about Amazon's disappointing guidance

Alex Wong/Getty ImagesJeff Bezos, CEO and founder of Amazon

Amazon on Thursday posted third-quarter earnings that beat on profits but missed on sales. Shares are now under pressure, as investors worry about its softer-than-anticipated revenue forecast for the coming holiday season.

The tech giant earned $US5.75 a share, well above the $US3.11 expected by Wall Street analysts. But the company’s $US56.6 billion sales fell short of the $US57.1 billion that was anticipated.

More disappointingly, the retailer said it will generate $US3 to $US5.54 earnings per share on $US66.5 billion to $US72.5 billion sales. Analysts were expecting $US5.79 profits per share out of $US73.8 billion revenues.

The retailer remains confident in its business.

“We’re not slowing down – Amazon Business is adding customers rapidly, including large educational institutions, local governments, and more than half of the Fortune 100,” said CEO Jeff Bezos in a press release. He added that surging profits from its North American retail and Amazon Web Services (AWS) cloud computing businesses helped boost its bottom line.

Nearly every analyst across Wall Street was impressed by Amazon’s solid margins across all segments and reiterated bullish views on the stock.

Here’s what Wall Street is saying about the quarter:


Jefferies — ‘Every rockstar needs a break’

AmazonThe Amazon Key’s Cloud Cam.

Price target: $US2300 (from $US2260)

Rating: Buy

“Every rockstar needs a break,” said Jefferies analyst Brent Thill.

“As Amazon continues to grow in scale, leverage in the model is beginning to show up in results. Investment in infrastructure (both fulfillment and AWS) and headcount decelerated further in third quarter despite strong usage growth as both AWS and retail achieved better infrastructure efficiencies. Continuing mix shift to third-party sales and solid ad revenue growth (at much higher margins) are helping profitability too. Still, on quarter to quarter basis, profitability will remain lumpy as Amazon continues to invest in many areas (including international, AWS, ad business).”


RBC Capital Markets — ‘Amazon remains an Internet staple’

Price target: $US2300 (from $US2100)

Rating: Outperform

“Amazon remains an Internet staple,” said Mark Mahaney at RBC.

“Amazon posted generally positive third-quarter results-In-line Revenue with the highest Gross Margin we have seen in any third quarter & record high Operating Margin. $US1.3B Operating Profit upside was Amazon’s biggest ever. That said, guidance came in below expectations although, for Operating Margin in particular, given the historical seasonality, we believe there could be upside.”


Nomura Instinet — ‘Every business in Amazon’s stable is growing faster than first-party sales’

Price target: $US1990

Rating: Buy

“Amid a tenuous market, Amazon’s missed sales and EBIT (despite lowered expectations) and a below-Street guide, proved enough to weigh on shares after market,” said Simeon Siegel at Nomura Instinet.

“Looking forward, we continue to point to mathematical earnings growth via margin mix shift as every business in Amazon’s stable is growing faster than first-party sales. And even with what appears to be a slowing in underlying Prime Member growth, we expect margin lifts to provide meaningful EPS upside, as seen last night. Reiterate Buy following the sell-off.”


Macquarie Research — ‘Amazon’s stock momentum will likely come to a halt’

GettyAmazon warehouse in Brieselang, Germany.

Price target: $US2100

Rating: Outperform

“Amazon’s stock momentum will likely come to a halt until we get a better sense of how the holiday will play out,” said Benjamin Schachter at Macquarie Research.

“The bottom line is that third-quarter EBIT was strong as the company is leveraging its assets and growing its highest margin businesses faster than expected. However, given the run in the stock over the past 12 months, the weaker than expected guidance, slowing unit growth, and overall decelerating rev lines may impact the stock. Nothing in the print changes our fundamental view on Amazon.”


Suntrust Robinson Humphrey —’We would be buyers’

Getty/Spencer Platt

Price target: $US2250 (from $US2150)

Rating: Buy

“Market jitters have the stock down on 4Q18 guidance, but we would be buyers,” said analyst Youssef Squali at Suntrust Robinson Humphrey.

“We believe the 4Q18 revenue guide (which is shy of consensus) is on the conservative side, as the company is greatly positioned to benefit from a robust holiday season and 4Q tailwinds in India.”

“We reiterate our Buy rating/raise our PT to $US2,250 to reflect 1) solid top line and impressive out-performance in operational efficiency/profitability, and 2) the shifting of our price target to year-end 2019 from 2018,” Squali added.


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