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What’s next for Amazon shares after earnings miss?



The Amazon stock remains a ‘buy, despite a string of price target downgrades in recent days.

Amazon share price
Source: Bloomberg
  • Amazon.com (NASDAQ: AMZN) shares closed slightly lower on Wednesday (04 August 2021)
  • The stock has fallen 7.5% since it posted worse-than-expected Q2 results
  • Although most analysts slashed their price targets, they still foresee a 24% upside potential on average
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Amazon stock price: what are analysts saying?

Amazon.com shares continue to remain suppressed, following a string of analyst price target downgrades.

Last week, JPMorgan analyst Doug Anmuth lowered his firm’s price target on the e-commerce company’s shares to US$4,100 from US$4,600, with rating unchanged at ‘overweight’.

He cited that Amazon’s Q2 earnings ‘disappointed’ with growth of 24% (excluding the impact of foreign exchange) being at only at the halfway mark of its guidance, after having beaten high-end points in the last six quarters.

Truist analyst Youssef Squali had the lowest price target of the latest investment notes at US$3,800 a share, down from US$4,000 previously.

He noted that Amazon’s second-quarter sales marks the company’s first earnings miss since the start of the pandemic. This reflected softening demand in the Online Stores segment as countries re-open, he added.

However, Squali maintained a ‘buy’ recommendation on the stock, as he still expects Amazon to achieve mid-teens growth in the second half of fiscal 2021, followed by a re-acceleration in FY2022.

The stock, which is down 9% in the last one month, still has an overwhelming consensus rating of ‘buy’, according to the latest broker data published by MarketBeat.

Analysts also have an average price target of US$4164 on the stock, which equates to a potential 24.12% upside from its closing price of US$3,355 on Wednesday.

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What are the key takeaways from Amazon’s Q2 report?

Unfortunately for Amazon, despite net sales increasing 27% to $113.1 billion in the second quarter from US$88.9 billion in the same period a year prior, headlines have been focused on how it missed analyst estimates of US$115.2 billion.

Discussions have been around how the 27% growth is ‘significantly’ lower than the 41% growth achieved in the same quarter in 2020.

Amazon’s chief financial officer Brian Olsavsky defended the slowdown during a call with reporters, saying that logistical delays in the Q1 of 2020 which were only fixed by the next quarter allowed Q2 2020’s sales to jump to the 35% to 45% range, where it remained through Q1 2021.

‘In Q2 of this year, we began to comp this high sales period from last year, and the year-over-year revenue growth rate has narrowed. It has also narrowed as vaccines become more readily available in many countries and people are getting out of their homes,’ he added.

Looking to the third quarter of 2021, Amazon expects net sales to be between US$106 billion and $112 billion, or at a growth rate of between 10% and 16% year-on-year. Analysts have a consensus estimate of US$119.2 billion, according to Refinitiv data.

Next, operating income is expected to end up between US$2.5 billion and US$6 billion, down from US$6.2 billion in Q3 2020.

Kelvin Ong | Financial writer, Singapore
05 August 2021


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