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Amazon Analysts Keep the Faith as Stock Falls on Profit Drop

Kit Rees, Joe Easton and Erin Roman

(Bloomberg) -- Amazon.com Inc. fell on Friday, after the e-commerce company reported its first quarterly profit drop since early 2017, as well as a miss for next quarter’s guidance.

The results prompted price-target cuts from a number of analysts, including Goldman Sachs, RBC Capital Markets, and Baird. However, Wall Street remains overwhelmingly positive in the tech behemoth’s long-term growth prospects; the stock has 54 buy ratings, compared with two holds and zero sells, according to data compiled by Bloomberg. Despite the earnings decline, analysts see upside from investments in one-day shipping, as well as growth in its advertising and Amazon Web Services businesses.

“The whole picture points to short-term pain for a visible long-term gain,” Bloomberg Intelligence said.

The stock fell as much as 4.8% on Friday. While Amazon remains up 14% for 2019, it has dropped more than 7% from a September peak.

Here’s a roundup of what analysts are saying about Amazon’s report:

Goldman Sachs, Heath Terry

(Buy, cuts price target to $2,200 from $2,350)

The deceleration at AWS raises some competitive concerns; still, continue to believe in the relatively early-stage shift of workloads to the cloud, the transition of traditional retail online, and the continued development of the advertising business.

With revenue growth accelerating for the second quarter in a row and a strong history of the company’s investments driving faster growth, still sees AMZN as one of the best risk/rewards in the sector.

Jefferies, Brent Thill

(Buy, price target $2,300)

Quarterly sales beat consensus while operating income was at high-end of guidance. However, outlook represents top and bottom-line downside to consensus at the midpoint and high-end.

That said, near-term pressure from one-day shipping has little bearing on ability to generate profit upside from faster sales growth at higher-margin AWS and advertising.

UBS, Eric J. Sheridan

(Buy, $2,100)

Not surprised with the initial negative stock reaction, but says it might be more of a reflection of a broader risk-off market environment among tech investors.

Says AWS sales growth was better than feared, while other revenue (predominantly advertising) demonstrated solid re-acceleration.

Given investments, an overall Ebit above the high end of management guide is a positive outcome.

RBC, Mark S.F. Mahaney

(Outperform, price target cut to $2,500 from $2,600)

This was a slightly soft quarter for AWS, likely due to Amazon’s push into large-scale enterprise in addition to perhaps some pricing pressure.

AWS growth and profit outlook deserves the most attention right now, while rest of the buy thesis is fully intact.

BMO Capital Markets, Daniel Salmon

(Cuts price target to $2,000 from $2,280)

AWS results were below expectations, but continues to see strong long-term growth.

Advertising revenue growth accelerated ahead of expectation, driven by targeting improvements, ad load increases, and easier comparisons. Optimistic there could be upside against easy comparatives from a year ago.

Baird, Colin Sebastian

(Outperform, price target cut to $2,080 from $2,150)

“We are buyers of Amazon on a pullback as investors digest the cost of one-day Prime.”

Do not believe implied growth slowdown reflects any meaningful change in trends with the core segments. Expects low-midpoints of quarterly revenue guidance to prove conservative.

Morgan Stanley, Brian Nowak

(Overweight, price target $2,100)

Quarter was lower than expected, but MS says one-day efficiency improved dramatically, which is key for long-term.

Cost and complexity of competing with Amazon is rising as firm raises consumer expectations quickly. Estimates 25% of U.S. units went through one-day delivery in third quarter.

(Updates shares in fourth paragraph.)

--With assistance from Beth Mellor, William Canny and Ryan Vlastelica.

To contact the reporters on this story: Kit Rees in London at krees1@bloomberg.net;Joe Easton in London at jeaston7@bloomberg.net;Erin Roman in London at eroman16@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Namitha Jagadeesh

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