Internet stocks are under the spotlight this week with many stepping up to deliver Q3 results. This earnings season comes against a backdrop of mounting headwinds with secular growth decelerating, competition intensifying, and macro concerns a plenty.
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All the above are reasons why J.P. Morgan’s Doug Anmuth is heeding caution around the performance of stocks in the segment.
However, while Amazon (AMZN) is not immune to the negative macro, if there’s one company to back right now, it should be the ecommerce giant, which remains the 5-star analyst’s “favorite name both short and long term.”
That said, it’s not a stroll in the park for Amazon right now either. The company reports Q3 earnings on today after the close. Since Q2 earnings there have been mounting concerns around “slower consumer spending & macro impact on cloud.”
This is borne out in the recent Chase CC data, which showed that in the first two weeks of October, US discretionary card-not-present displayed growth of 10%, lower than the 14% growth of Q3, and exhibiting a continuous slide from July at 15% to August’s 14% and September’s 13%. On the AWS front, Anmuth notes there is “growing concern around deals slowing down, competition (Oracle comments), & margins.”
Anmuth doesn’t actually make any meaningful revisions to Q3 estimates, but given “increased FX headwinds” and the prospect of slowing discretionary spending also potentially impacting near-term growth and profitability, there are changes to his estimates. Q4 Net Sales expectations are lowered by 2% while the Operating Income forecast is reduced by 11%. Looking further ahead, Anmuth’s forecast for 2023 Net Sales is decreased by 3% while Operating Income lowered by 6%.
Still, offsetting these downward revisions, Anmuth says Amazon becomes a “cleaner story through 2022 as revenue growth re-accelerates & operating income margins expand into 2023.” As such, Amazon remains Anmuth’s “TOP IDEA.”
Nevertheless, the price target is also lowered – from $185 to $175, although the new figure could still generate returns of 55% in the year ahead. Anmuth’s rating stays an Overweight (i.e., Buy). (To watch Anmuth’s track record, click here)
Overall, Amazon has accumulated no less than 33 reviews from the Wall Street analysts, and these break down to 32 Buys and a single Hold — and support a Strong Buy analyst consensus rating. The shares are priced at $112.63 and their $170.27 average price target implies a one-year upside of ~51%. (See Amazon stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
