Amazon Profit Slide, Outlook to Test Stock’s 20% January Gain

E-commerce and cloud computing giant (AMZN) bailed investors on a sharp decline in earnings announced after the market closed on Thursday.

Fourth-quarter net income was 17 cents per share, down 88% year-over-year, based on average analyst estimates tracked by Visible Alpha. Analysts expect revenue growth to slow again, to 6% year-on-year, as companies spend less on technology.

important point

  • Amazon expects fourth-quarter earnings of $0.17 per share.
  • This represents an 88% year-on-year decline, slowing sales growth to 6%.
  • Amazon has been cutting costs amid a slowdown in technology spending.
  • The company’s share price rose 20% in January, but remains down 31% over the past year.

The Street consensus is in line with Amazon’s October forecast for fourth-quarter operating profit of $0-4 billion ($3.5 billion in the same period last year) and net sales of $140-$148 billion , showing 2% to 8x growth. %.

Amazon cited increases in shipping, fulfillment, and transportation costs among its investments in fulfillment capacity when it reported that its third-quarter operating profit fell by about half year-over-year. Free cash flow slipped to a deficit of $19.7 billion in the 12 months to September, compared with gains of $2.6 billion a year ago.

Amazon has responded by announcing 18,000 employee layoffs after adding more than 300,000 jobs in 2021.

Amazon’s stock rebounded nearly 20% in January, overtaking Meta Platforms (META) and Netflix (NFLX) for the biggest monthly gain by a tech megacap, but the stock is up in a year. It remains down 31%. This is worse than the S&P 500 Technology Sector Index’s 17% annual decline (see chart below).

The stock remains a crowd favorite with 42 buy ratings, 8 overweight calls, 3 holds, and 1 sell recommendation among analysts to follow. Over the past two weeks, five analysts have echoed their bullish view on Amazon, but four out of five have simultaneously lowered their price targets.

Amazon’s focus on e-commerce and cloud computing means it is targeting the largest total market with the lowest market penetration, Barclays analysts said on Monday. I reiterated my overweight valuation on equities, lowering my target from $140 to $130.

“Weaker outlook [Amazon Web Services] Put more pressure on the retail sector to cut costs to boost margins,” UBS analysts said last week, lowering their price target to $118 from $121 and repeating their buy recommendation.

Credit Suisse is the sole exception, raising its Amazon price target from $142 to $171 on Monday. “We maintain an outperformer rating in our papers based on: 1) e-commerce segment operating margins expand as we grow into larger infrastructure; 2) compared to advertising; and 3) an upward bias to AWS revenue projections and possibly a more moderate deceleration path as suggested by the continued capital intensity in the business.” Credit Suisse said.

A Bank of America analyst said in a reference to Microsoft (MSFT): ), competing with Amazon in cloud computing.

AMZN Stock Price vs S&P 500 IT Sector Index, Last Year

Source: Trading View.

Amazon key stats

Q4 FY2022
Q4 FY2021 4th Quarter 2020
Earnings per share ($) 0.17 1.39 0.70
net sales ($B) 145.5 137.4 125.6
Amazon Web Services
net sales ($B)
21.8 17.8 12.7

Source: Visible Alpha

Key stats

Amazon’s cloud computing segment, Amazon Web Services (AWS), is Amazon’s fastest growing business and has the highest profit margins in recent years. It is one of three company segments along with North America and International.

According to Amazon, AWS consists of “global sales of computing, storage, database, and other services to start-ups, enterprises, government agencies, and academic institutions.” A 27% increase compared to the same period last year. AWS is expected to record annual revenue growth of 22% in Q4 2023 and 21% in Q1.

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