By Michael Elkins
Telsey Advisory Group reiterated the “Outperform” rating on Amazon.com (NASDAQ:) but cut the price target on the e-commerce company to $125.00 (from $140.00) ahead of its earnings release of 4Q22 scheduled for Thursday, February 2.
Telsey cut its outlook for 4Q22 and 2023 on the company to reflect a tougher environment for consumers and businesses. The company is facing headwinds in the form of a normalizing market after two years of high growth fueled by COVID-19. It also has to deal with unfavorable exchange rate trends, and is slowed down by ongoing strategic investments.
As reported on the October 27 earnings conference call, Amazon’s business slowed over 3Q22 – both in retail (especially internationally) and in AWS – and these trends continued in 4Q22.
Telsey analysts write, “Overall, we believe Amazon should continue to gain market share by leveraging its Prime membership base, small business relationships, technology lead, and retail consolidation Amazon’s focus on newer businesses – grocery, drugstore, fashion, home, private labels, third-party, same-day/one-day delivery, Amazon Logistics and telehealth – should increase the value of Amazon. AWS’ strong growth and profitability, along with its media and advertising offerings, should continue to outperform the company average and support retail.”
In general, they expect business trends to improve in 2H23, particularly profitability, with anticipated gains from recent proactive actions, including a focus on higher-margin categories, reduced spending on logistics and fulfillment centers, closing unprofitable divisions, managing labor costs, and running in expenses related to COVID-19.
Telsey lowered 4Q22 sales growth estimates from 7.6% to 5.9%, to $145.6 billion from the consensus $145.8 billion and $140-148 billion forecast. The new EBITDA estimate for 2023 is $80.7 billion, down from $83.0 billion previously.