As Amazon.com Inc. (AMZN) gears up to unveil its third-quarter earnings report on Thursday, October 31st, Wedbush analysts, including Dan Ives and Scott Devitt, are presenting an intriguing outlook for the e-commerce giant. They see a compelling “risk/reward” scenario, acknowledging that expectations for profitability in the latter half of 2023 have been tempered.
While Amazon’s stock performance has been relatively muted since its second-quarter earnings report on August 1st, with a modest 1.9% gain compared to the NASDAQ’s 6.9% rise, Wedbush maintains a positive stance. The analysts attribute this underperformance to ongoing discussions surrounding initiatives like Project Kuiper and the associated costs. However, they believe investors should capitalize on this period of relative weakness, reiterating their Outperform rating and $225 price target for the company.
Wedbush’s earnings estimate for the third quarter is roughly 6% higher than the consensus, and they have adjusted their fourth-quarter estimate upward by approximately 3% to $17.3 billion, aligning with market expectations. Despite concerns regarding Project Kuiper’s expenses, Wedbush remains confident about Amazon’s long-term margin trajectory. The transition towards higher-margin advertising and Amazon Web Services (AWS) revenue is projected to significantly enhance Amazon’s profitability, with operating income anticipated to experience a 20% compound annual growth rate over the next five years.
Echoing Wedbush’s optimism, Goldman Sachs analyst Eric Sheridan expects Amazon to deliver a robust combination of revenue growth and operating margin expansion in its upcoming third-quarter results. While Sheridan acknowledges that e-commerce demand remains relatively stable, he points out that units sold are outpacing revenue due to lower average selling prices. This shift is driven by digital consumers increasingly seeking out lower-priced items. Amazon’s strategic expansion of its product selection, including essential goods, aligns with this evolving consumer behavior, providing a solid foundation for sustained growth and profitability.
With Amazon’s third-quarter earnings report on the horizon, investors will be closely watching for insights into the company’s strategic initiatives, its margin trajectory, and its ability to navigate the evolving consumer landscape. Wedbush’s optimistic outlook, coupled with Goldman Sachs’ positive expectations, suggests that Amazon’s long-term growth potential remains intact, despite near-term challenges.