Should you buy Amazon shares on the post-earnings weakness?

By:
on Feb 2, 2023
Updated: Feb 3, 2023
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  • Amazon just reported its least profitable fourth quarter since 2014.
  • JMP Securities' analyst sticks with his $140 price target on AMZN.
  • Amazon shares are still up more than 20% versus the start of 2023.

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Amazon.com Inc (NASDAQ: AMZN) just reported its least profitable fourth quarter since 2014. Shares are trading down in extended hours.

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Amazon shares down on iffy outlook

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The stock is taking a hit also on weak guidance. In its current financial quarter, Amazon expects to bring in $121 billion to $126 billion of revenue on $4.0 billion in operating profit at the top end of the range.

In comparison, experts had called for $125.09 billion and $4.04 billion, respectively. Reacting to its earnings print on Yahoo Finance, JMP Securities’ Nick Jones said:

I think top-line missing a little bit with FX headwinds can be digested. But not on operating income. The Street was looking for Amazon to control costs a little bit more.

Amazon shares are still up more than 20% for the year.

AWS disappointed as well

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Even more disappointing was the slowdown in cloud computing. Amazon Web Services this quarter generated $21.38 billion in revenue on $5.21 billion of operating income – both well below the estimates.

Year-over-year, the business grew 20% in the holiday quarter versus 27.5% in Q3, as per the earnings press release. Jones added:

Where disappointment really is in the AWS performance. It highlights the tough macro environment we’re in that these eCommerce companies and cloud companies are facing.

According to Amazon.com Inc, it ended the year with a net loss of $2.7 billion, much of which was related to an enormous hit to its stake in Rivian Automotive Inc.

Amazon.com Inc Q4 financial highlights

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  • Earned $278 million versus a much higher $14.3 billion a year ago
  • Per-share earnings also narrowed sharply from $1.39 to 3 cents only
  • Revenue increased 9.0% on a year-over-year basis to $149.2 billion
  • FactSet consensus was 17 cents of EPS on $145.71 billion revenue
  • Ad revenue of $11.56 billion (up 23%) was also better than expected

Are Amazon shares worth buying?

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Last month, Amazon said it will lay off 18,000 of its employees worldwide (read more). Jones agreed that it may eventually cut more jobs depending on how the macro landscape unfolds but said:

Amazon has a long runway of growth ahead of them. You really want to see Amazon continue to invest in AWS, cloud, retail and advertising to grow longer term. They have a strong balance sheet. They can navigate this.

To that end, he continued to recommend that you buy Amazon shares on the weakness and is particularly constructive on its 3P model. Jones’ $140 price target suggests about a 30% upside from here.

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