The Ratings Game: ‘Pretty much Google 2.0’ — Amazon price targets reduced by analysts, though they say the long-term story is intact

United States

Analysts downgraded their price targets for after it reported missing its third quarter sales expectations alongside a weak sales forecast for the upcoming festive season.

Amazon AMZN, -4.06% stock tanked to lows of 20% in pre-market Friday trading to $ 88.98 per share after the company reported a 15% rise in overall sales to $ 127.1 billion in the third quarter versus Wall Street estimates of $ 128 billion.

The e-commerce giant also said it expects to report fourth quarter revenue between $ 140 billion and $ 148 billion, around $ 10 billion shy of analyst expectations.

“We’re very optimistic about the holiday but we’re realistic that there are various factors weighing on people’s wallets,” said Amazon Chief Financial Officer Brian Olsavsky to analysts on a call on Thursday evening.

“While we are encouraged by our progress across the business, macroeconomic environment remains challenging worldwide,” Olsavsky added. “The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organizations of all sizes evaluate their technology and advertising spend.”

“The good news here is that the story isn’t broken, it’s just pushed out into 2023 while Q4 may get worse before it gets better… pretty much Google 2.0,” said Mark Shmulik, an analyst from Bernstein, who maintained an outperform rating of Amazon but cut the price target to $ 125 from $ 150 per share.

Read: Alphabet is ‘a big ship to turn around,’ when it comes to much-needed belt-tightening, but Wall Street has faith

JPMorgan analysts led by Doug Anmuth believe the pressures on Amazon are “largely macro-driven, and not fundamental.”

It kept its overweight rating but lowered its price target to $ 145 from $ 175 per share to reflect the value of its cloud services.

Amazon Web Services

Amazon Web Services, which accounted for most of the company’s $ 2.9 billion profit, saw its slowest revenue growth since 2014 of 27%.

“Similar to the start of the pandemic AWS clients are asking for discounts and rationalizing and/or migrating their workloads to cheaper products. The pipeline remains robust, but expect some pricing pressure in the near-term coinciding with more aggressive competition,” added Shmulik.

Also: Why the rout for big tech companies may just be getting started

Aaron Kessler, an analyst from Raymond James, kept its outperform rating due to “solid long-term eCommerce growth” and “continued leadership and momentum in cloud”.

Kessler did slash his price target for Amazon from $ 164 to $ 130 per share due to the slower AWS growth and lower fourth quarter margins.

“While we expect a more challenging growth outlook near-term, we remain positive on long-term growth for both retail and AWS with improving margins over time as Amazon focuses on productivity improvements,” he said.