A Shocked Wall Street Reacts To Amazon's Biggest Crash Since 2011

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by Tyler Durden
Friday, Apr 29, 2022 - 02:41 PM

Amazon shares have plunged the most in almost a decade - tumbling 12%, or just a little bit less compared to the 12.8% one-day loss in October 2011 - after the e-commerce company gave a dismal outlook that was seen as disappointing and reported a rise in operating costs after its hiring and warehouse-construction push.

As always focused on the rearview mirror, dozens of Wall Street firms cut their price targets on the stock after the fact, taking the average to about $3,761, its lowest since 2020 and down from roughly $4,100 at the start of the month. No less than least 31 brokers have cut PT over the past month, yet a whopping 57 analysts still hold AMZN a "buy" with just 1 hold, and 1 sell.

Below, courtesy of Bloomberg is a summary of some of the sellside opinions:

RBC’ Brad Erickson (outperform, PT cut to $3,500 from $3,880)

  • In a note titled "Amazon ready for the holidays in April" Erickson writes that while AMZN ramped up building capacity, it did so intentionally to prepare for the holiday season, thus investors shouldn’t see temporary over-capacity as a negative read on demand or a reflection of post-investment cycle profitability
  • Inflation, underutilized readied capacity and tough comps are something of a perfect storm, but are now also better baked into Wall Street models making the setup from here positive

JPMorgan’s Doug Anmuth (overweight, PT cut to $4,000 from $4,500)

  • While AMZN hardly feels clean at the moment, the thesis remains intact, albeit potentially pushed out a bit in terms of costs
  • AMZN is already seeing improvement around labor & fixed costs, w/their impact essentially cut in half in 2Q

Credit Suisse’s Stephen Ju (outperform, PT reduced to $3,700 from $4,100)

  • Investor focus will be on the shortfall in operating income guidance as Amazon works its way through lingering fulfillment/delivery inefficiency headwinds
  • Amazon also noted that delivery performance is approaching pre -pandemic levels, which should ultimately result in share gain through improving user experience

MKM Partners’ Rohit Kulkarni (buy, PT cut to $3,625 from $4,000)

  • Sees 2Q as a clearing event and a final reset in Wall Street models as we lap the final months of the pandemic comps
  • As the world enters the “new normal,” Kulkarni expects an improving fundamental setup for 2H22 and 2023 driven by normalized commerce growth, sustained premium AWS growth, and lower costs

Evercore ISI’s Mark Mahaney (outperform, PT cut to $4,100 from $4,300)

  • AMZN is now large enough and diversified enough to be fully exposed to global macro challenges
  • These macro issues are transitory and AMZN can effectively execute through them, delivering rising profit margins over time

Piper Sandler’s Tom Champion (overweight, PT cut to $3,400 from $3,900)

  • Amazon Web Services growth decelerated in 1Q to ~37%, after four quarters of accelerating growth
  • That said AWS is now a ~$74b run- rate business and its growth was driven by continued cloud migration spend

BMO’s Daniel Salmon (outperform, PT reduced to $3,450 from $3,650)

  • Normalized demand should improve capacity optimization through 2H22
  • 3Q22 revenue will benefit from easing comps; Prime Day falling in July should be an especially important barometer in the face of continued macro uncertainty

Hargreaves Lansdown’s Sophie Lund-Yates  

  • The group had to double its capacity to meet demand when the pandemic hit, however as of now revenues aren’t keeping pace to keep margins up
  • “With inflation hitting household budgets around the world, spontaneous Amazon purchases are likely to be reined in. With a lot of what’s on the website discretionary items, this puts Amazon’s retail operation in the eye of the storm”

Citi (buy; PT $4,100)

  • Given lower-than-expected 1Q operating income and 2Q operating income guidance, we would expect shares to be pressured

Baird (outperform, PT cut to $3,750 from $4,000)

  • “While investors may remain focused near term on online retail segment performance, services revenue growth remains very healthy”
  • AWS growth is strong, as are AWS margins

Truist Securities’ Youssef Squali (buy, PT reduced $3,500 from $4,000)

  • Softer 2Q22 guidance reflects Prime Day moving to 3Q
  • Pricing actions across AMZN’s businesses could help offset cost inflation in 2Q and beyond

Vital Knowledge

“The quarter is disappointing w/a huge op. loss in the North American retail unit driving overall op. income below the St and the guidance is even worse”

Mizuho Securities

  • The revenue guide “implies a real slowdown,” writes Jordan Klein
  • Costs are a real issue, and operating income “missed bad”
  • “AMZN is relatively cheap for growth, but not all that compelling”

Source: Bloomberg