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Buy Amazon (AMZN) Stock Down 20% From Highs?

Benjamin Rains

Shares of Amazon AMZN rest roughly 20% below their 52-week high, despite the broader market and tech resurgence to start the year. The question is should investors buy Amazon stock now with so much room to run?

Overview

Amazon’s revenues climbed nearly 20% during the holiday quarter to top our Zacks Consensus Estimate. But Q4 represented a significant slowdown compared to Q3’s 29% climb, Q2’s 39% surge, Q1’s 43% jump, and Q4 2017’s 38% growth. In fact, last quarter marked Amazon’s smallest top-line expansion since 2015.

Jeff Bezos’ firm has perhaps come to the point where the law of large numbers makes it difficult to post huge year over year growth on a percentage basis. This means Amazon might have reached a place in its public history that fellow tech giants like Google GOOGL, Apple AAPL, and Microsoft MSFT have faced already. Yet, like its peers, Amazon is still a powerful company that looks poised for growth in new industries, as it remains a cloud computing, retail, and streaming power.

AMZN stock hovered at around $1,633 a share through morning trading Monday. This marked an approximately 20% downturn from its 52-week high of $2,050.50 and sets up a solid buying opportunity for those high on Amazon.

Outlook

Amazon is still the undisputed champion of the cloud computing market. The company’s AWS business boasts roughly 32% market share to blow away second place Microsoft’s 14%, while third and fourth place IBM IBM and Google rest in the single digits. Going forward, the company’s higher-margin cloud computing business will likely boost Amazon’s top and bottom-line as the industry becomes increasingly important to businesses big and small.

Looking ahead, Amazon Web Services revenue is projected to surge 40.5% in Q1 to reach $7.65 billion, based on our current NFM estimates. This would come up short of last quarter’s 45% expansion and the trailing six quarter’s roughly 45.5% average growth. On top of that, Amazon, which is currently the third largest digital advertiser in the U.S. behind Google and Facebook FB, is expected to continue to expand its digital ad business as more consumers start their product searches on Amazon platforms.

Another potentially encouraging sign is Amazon’s Prime-driven subscription business. The unit is expected to climb over 47% from $3.10 billion in the year-ago period to reach $4.57 billion in the first quarter, which would crush last quarter’s 25% jump. Amazon’s projected subscription expansion is a good sign for its core e-commerce segment and helps it compete against Netflix NFLX, Hulu, and soon enough Disney DIS, AT&T T, Apple, and others in the streaming entertainment market.

Overall, our current Zacks Consensus Estimate calls for Amazon’s Q1 revenues to climb 16.6% to reach $59.54 billion, with full-year revenues projected to pop 18.5% to touch $275.96 billion. This would clearly mark a significant slowdown compared to fiscal 2018’s 31% top-line growth. Amazon is still, however, expected to make $44 billion more in 2019 than it did last year. Peeking further ahead, Amazon’s 2020 revenues are projected to come in $50 billion above our current-year estimate to reach $325 billion.

At the bottom end of the income statement, Amazon’s adjusted earnings are projected to soar roughly 49% in Q1 and 33% for the full year. Plus, AMZN’s 2020 EPS figure is expected to come in 50% above our 2019 estimate, which helps show that the firm is becoming more profitable.

Bottom Line

Amazon looks poised to remain a cloud computing powerhouse and a retail giant that has forced Walmart WMT, Target TGT, and others to revamp their businesses. Amazon is also projected to see its digital advertising business boom and its streaming service grow. On top of that, the company is set to expand its pharmacy segment, IoT offerings, and much more.

Amazon is currently a Zacks Rank #3 (Hold) based on its mixed earnings estimate revision activity. Yet now could be time to think about buying AMZN stock as it rests 20% below its 52-week high because it seems hard to imagine shares of Amazon not at least returning to their previous heights at some point.

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