Shares of the world’s largest e-tailer fell 7% on Friday as investors digested disappointing results that contradicted tough comparisons from a year ago, but some on Wall Street said a chance to buy the stock knocked.
Even with Amazon.com AMZN’s sharp drop on Friday,
stock is up 2.6% with more than half of the year over and the holidays ahead. In 2020, the pandemic forced movement restrictions for much of the world and kept many workers at home, yielding a 76% gain.
The benchmark S&P 500 index SPX,
has risen 17.1% so far.
The sticking point for investors was lost sales and a forecast that sales growth would continue to slow as shoppers reverted to old physical habits and generally turned to something other than shopping. Chief Financial Officer Brian Olsavsky said during the earnings call that he expects “this pattern of difficult year-over-year revenue mixes to continue in the coming quarters.”
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Still, sales rose 27%, Neil Saunders, managing partner at GlobalData, recalled. He said exceptionally high expectations set the stage for disappointment, despite the more reasonable assumption that e-commerce sales would come back down to earth as the recovery progressed.
“As people began to return to normal life and pre-pandemic shopping habits, this prospect was never on the cards — as evidenced by the fact that total U.S. online retail sales grew a modest 12.6% in the second quarter of 2017. Amazon,” Saunders wrote in a note.
“What this means is that, in terms of growth, even with Prime Day’s advantage, Amazon was running down an escalator to maintain its trajectory — especially as it faced last year’s growth of over 40%. “
Analysts at SIG Susquehanna lowered their price target from $5,500 to $5,000, but remained positive on equities, as chief analyst Shyam Patil said it was a “great time to buy” Amazon stock.
“Looking at the two-year compound annual growth rates, the trends are still very strong and we see no reason to worry. Ultimately, we continue to see Amazon as a long-term secular grower, supported by its strong e-commerce, cloud and advertising operations,” Patil said in a note to customers.
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At UBS, a team of analysts led by Michael Lasser held a buy recommendation for the e-commerce giant, but lowered its 12-month price target from $4,350 to $4,020. He said Amazon is entering a “transition period” in which overall online growth will remain sluggish, especially as US office workers keep returning to work.
Importantly, Amazon still accounted for 44% of all incremental online spend in Q2. This is well above the 36% it has normally accounted for over the past 5 years,” he said.
“If Amazon can maintain its dominant position, it should continue to see growth through the long-term secular trend of e-commerce.”
And Lasser reiterated that buy the Amazon stock dip. “In the past, it has been wise to build Amazon stocks when they pull out in response to an investment cycle. We think it would be smart to do the same now,” he said.
Rather than focusing solely on revenue figures, Credit Suisse takes a closer look at spending in its most recent note.
“[W]e argue that what’s more important is the continued increase in CapEx ($15.7 billion in 2Q21) as Amazon continues to buy medium/last mile assets in preparation for the resumption of the one-day Prime Delivery expansion and what the rollout of should be the same day,” analysts led by Stephen Ju wrote.
Credit Suisse estimates Amazon stocks outperform with a price target of $4,700.
“We are therefore buyers of Amazon stock with a potential pullback, in anticipation of what should be a period of faster gains in the consumer’s wallet.”
As Amazon made gains during the pandemic, experts note that competition, such as Walmart Inc. wmt,
and Target Corp. TGT,
also ramped up their convenience and speed, putting pressure on the e-commerce giant.
And: Amazon spent billions to get delivery from many US customers within 1 hour, but Walmart and Target are still winning that race
Society’s reopening didn’t pull people away from online shopping, with the e-commerce giant making its third straight quarter of $100 billion. That said, the reopening of brick-and-mortar stores is putting a bit of pressure on Amazon as Walmart, Target and other retailers have become aggressive in their online buy, in-store (BOPIS) offerings,” said Guru Hariharan, former Amazon executive. and current CEO of CommerceIQ, an e-commerce automation company.
At KeyBanc Capital Markets, a team of analysts led by Edward Yruma set a price target of $4,000 and an overweight rating, but said investors may need to brace themselves because “reopenings will lead to lumpiness in growth rates.”
“Nevertheless, Prime Member spending is still rising and overall competitive dynamics remain more favorable than pre-COVID. +37% AWS growth was strong and companies focused on growth investments should be a windfall,” the analyst said.
While admitting that even their own under-consensus estimates for the third quarter “proved aggressive,” Yruma said they expect “AWS and advertising to prove to be the biggest areas of expansion for Amazon in the coming quarters.”