Amazon’s (NASDAQ:AMZN) third-quarter results reflected the impact of macro pressures on the company’s e-commerce and cloud computing businesses. Its guidance for the holiday quarter indicates a slowdown in revenue growth as inflation and fears of an impending recession are impacting consumer spending. Nonetheless, Wall Street analysts remain bullish about Amazon’s long-term prospects even though near-term pressures persist.
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Amazon Focusing on Productivity
After reporting two straight quarters of losses, Amazon generated a net income of $2.87 billion or $0.28 per share in Q3. However, net income declined 9% year-over-year. The company’s North America and International retail divisions reported operating losses in the quarter. In contrast, the cloud computing business, Amazon Web Services, generated an operating income $5.4 billion, reflecting a growth of 11% even as the division’s revenue grew at the slowest rate since 2014.
Amazon is aggressively reducing costs and boosting productivity as inflation is weighing on profitability. It is driving productivity across its fulfillment and transportation networks, and other areas as well.
The company is expected to lay off about 10,000 employees to bring down costs. Additionally, Amazon is reportedly reviewing unprofitable businesses, including its devices unit, which also comprises voice assistant Alexa. It’s worth noting that the company continues to invest in areas where future growth looks promising, including AWS.
Is Amazon Stock a Buy, Sell, or Hold?
Recently, MoffettNathanson analyst Michael Morton initiated coverage of Amazon stock with a Buy rating and a price target of $118. Morton sees the scope for Amazon’s valuation multiple to expand as the company is optimizing its capital expenditure and improving profitability.
Overall, Wall Street has a Strong Buy consensus rating on Amazon stock based on 33 Buys versus two Holds. The average AMZN stock price target of $139.88 suggests 51.3% upside potential from current levels. Shares are down 44.5% year-to-date.
Conclusion
Near-term pressures on Amazon due to macro challenges cannot be denied. Nevertheless, most analysts remain bullish on AMZN stock due to their faith in the company’s long-term potential.
Analysts see several positives in the company, including its dominance in the e-commerce space, leading position of AWS and further growth prospects in cloud services, rapidly growing advertising business, and strong fundamentals. For investors with a long-term horizon, Amazon might be an attractive pick, given the steep pullback.
