It has not gone unnoticed that the major indexes have seen significant year-to-date gains, driven by the Mega Caps. The tech giants have played a major role in these gains, with all of them experiencing substantial increases. One notable example is Amazon (NASDAQ:AMZN); shares of the e-commerce king have risen ~60% since the start of 2023.
Is it time to maybe assess a position in Amazon shares after such a rise? Nope, appears to be the response of Evercore 5-star analyst Mark Mahaney, who believes now is the time to “lean in on AMZN” ahead of Q2 earnings on July 27th.
Looking ahead to the print, Mahaney is expecting Q2 revenue of $131.6 billion, more or less in-line with the Street and higher at the mid-point than Amazon’s guide of $127 -$133 billion. Likewise for GAAP Operating Income, Mahaney expects $4.8 billion, similar to consensus and above the mid-point of the guide at $2.0 -$5.5 billion.
It should be noted that Amazon has outperformed the high-end of its Operating Income guide in 20 of the last 29 quarters. However, over the past 12-15 months, the company has faced unusually severe cost pressures, resulting in this achievement occurring only in four out of the last eight quarters. Nevertheless, Mahaney believes that these pressures have now begun to ease.
Mahaney has tagged 2023 as a ‘trough growth, trough margin, and trough multiple year,’ which he terms the ‘Triple Trough Thesis.’ He believes that things will improve from this point onward. “We see the distinct possibility of revenue growth acceleration and margin expansion for Amazon’s Retail and Cloud segments going into ’24,” the top analyst explained. “We are particularly intrigued by the possibility that increased AI workloads will materially boost demand for Cloud compute and storage solutions, where AWS strongly leads the market.”
Another term used by Evercore, called ‘Shipping Elasticity,’ refers to the firm’s concept of the ‘incremental demand/revenue generated by Amazon’s Prime shipping speed acceleration.’ This concept argues that Prime penetration continues to increase, which is unrelated to the complexity of Prime cancellation. What it does mean is that this development is expected to boost the revenue haul.
An Evercore survey’s findings indicate a growing trend of increased usage of Same Day Delivery, particularly among households subscribed to Prime Same Day on Amazon. These households are spending significantly more compared to other Amazon households. Mahaney estimates that for every 1% increase in Prime Same Day penetration, it has the potential to generate up to $1.3 billion in additional revenue and $130 million in incremental operating income.
All told, Mahaney rates Amazon shares an Outperform (i.e., Buy), while his $150 price target implies shares have room for further growth of 12% from current levels. (To watch Mahaney’s track record, click here)
In general, other analysts are on the same page. AMZN’s Strong Buy consensus rating breaks down into 38 Buys and just a single Hold. The $143.53 average price target brings the upside potential to 7.5%. (See Amazon stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
