Analysts adjust Amazon stock price target after earnings
If you're wondering why Andy Jassy sounded so jazzed on Tuesday, the answer is as simple as AWS.
Jassy, the CEO of Amazon (AMZN) , was discussing the recent numbers for Amazon Web Services, the e-commerce giant's cloud computing platform.
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AWS reported first-quarter revenue of $25 billion, up 17% year-over-year, beating Wall Street’s estimates of $24.5 billion.
"We remain very bullish on AWS," he told analysts during the company’s earnings call. "We're at a $100-billion-plus annualized revenue run rate, yet 85% or more of the global IT spend remains on-premises.
"And this is before you even calculate [generative artificial intelligence], most of which will be created over the next 10 to 20 years from scratch and on the cloud," he added.
The results prompted analysts to rethink their outlooks for Amazon's stock.
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Amazon delivers solid first-quarter profit
Amazon reported first-quarter earnings of 98 cents a share, more than triple the 31 cents of the year-earlier period and beating the FactSet analyst consensus of 84 cents.
Revenue totaled $143.3 billion, up from $127.4 billion a year earlier and coming in ahead of FactSet's call for $142.6 billion.
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Amazon, which recently ended a cost-cutting and layoff effort, also provided a muted near-term sales forecast and warned that capital spending would increase throughout the year.
Regarding AWS, Jassy said, "It's useful to remember that year-over-year percentages are only relevant relative to the total base from which you start."
AWS boosts capital spending, CEO says
"And given our much larger infrastructure cloud computing base, at this growth rate, we see more absolute dollar growth again quarter over quarter in AWS than we can see elsewhere," he said.
Prior to the COVID-19 pandemic, Jassy said, companies were marching to modernize their infrastructure, moving from on-premises infrastructure to the cloud to save money, innovate more rapidly, and drive productivity among developers.
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"The pandemic and uncertain economy that followed distracted from that momentum, but it's picking up again," he said. "Companies are pursuing this relatively low-hanging fruit in modernizing their infrastructure."
Jassy added that AWS "customers are also quite excited about leveraging genAI to change the customer experiences and businesses.
"We expect the combination of AWS's reaccelerating growth and high demand for genAI to meaningfully increase year-over-year capital expenditures in 2024, which given the way the AWS business model works is a positive sign of the future growth."
TheStreet Pro’s Stephen Guilfoyle said Jassy had prioritized cost reduction in its e-commerce business, “prioritizing profitability there while spending in a big way on increasing the firm's generative AI capabilities at the cloud unit and other parts of the firm where it might better position the firm in its efforts to generate expanded margins on increased overall sales.”
"This quarter, I believe, shows substantial progress on those fronts,” he said.
Several analysts issued research reports, with some adjusting their stock-price targets, in response to Amazon's results.
Wedbush analyst Scott Devitt told investors that Amazon remains on the firm's Best Ideas List. He reiterated his outperform rating and $225 price target.
The analyst said Amazon's softer second-quarter revenue guidance reflects primarily "more modest growth in the lower-margin retail business."
Devitt said AWS and the company's advertising business are both well positioned for the second quarter and the second half, "with AWS lapping favorable [comparisons] and benefiting from AI monetization, while advertising growth is supported by a notably strong industry backdrop and the rollout of Prime Video ads."
"While we acknowledge incremental [capital-spending] investment will burden free cash flow in the coming quarters," the analyst said, "we think the associated monetization opportunity is already contributing to AWS growth and should continue to do so with management expecting AI to generate tens of billions of revenue in the next several years."
Analyst cites solid earnings beat at Amazon
BMO Capital raised Amazon's stock price target to $220 from $215 and affirmed an outperform rating on the shares after the earnings beat.
The firm said it was positive about the company's accelerating AWS growth trajectory in coming quarters.
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BMO cited generative AI workloads and the reacceleration of migration to the cloud from on-premise along with its "attractive" double-digit gross merchandise volume growth expected through at least 2025, with margins improving due to regionalization.
Prime Video advertising dollars are also an opportunity on the horizon for Amazon.com, BMO added.
Goldman Sachs raised the investment firm's price target on Amazon to $225 from $220, reiterating a buy rating on the shares.
Amazon's first-quarter earnings report was a solid beat, the firm said, driven by noticeable strength in North American operating margins, solidly positive international margins, mid-20% advertising-revenue growth, and a mixture of upside in both cloud computing revenue and segment operating margins.
Loop Capital analyst Rob Sanderson maintained his buy rating and $215 price target on Amazon, noting that the company's first-quarter results showed meaningful upside to profitability.
Leap Day and Easter timing contributed 120 basis points, as was expected. The analyst said that foreign exchange was a half-percentage-point greater headwind than management had anticipated, so revenue would have exceeded the high end of estimates if not for that currency headwind.
Roth MKM analyst Rohit Kulkarni raised the investment firm's price target on Amazon to $210 from $205 while affirming a buy rating.
Kulkarni noted Amazon's impressive earnings beat with revenue coming close to high-end guidance and operating profit materially above high-end guidance.
AWS is now posting $100 billion of annual recurring revenue, and both North American and international retail margins turned positive for the first time since peak pandemic days, the analyst said.
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