Amazon offers big upside

JP Morgan and Goldman Sachs’ 12-month price targets for Amazon suggest the retail giant offers significant upside over the next year.

Amazon is the world’s largest eCommerce company and has exposure to many geographies. It reports its revenue in three segments.

  • North America
  • International
  • AWS (Amazon Web Services)

The North American and International segments generate their revenue from retail sales and subscription services like Amazon Prime.

Amazon Web Services (AWS) launched in 2006 and offers cloud infrastructure to clients across the world.

The North American, International, and AWS segments contributed 60%, 27%, and 13% to the group’s 2021 net revenue.

Amazon recently released its Q3 results, which sent the share price plummeting.

Amazon reported revenue of $127.1 billion – a 15% increase from 2021’s Q3 $110.8 billion net sales. It was slightly below the market’s expected revenue of $127.46 billion.

The lower revenue was a result of low growth in the AWS segment. It grew 27% compared to Q3 2021’s growth of 39%.

The company also experienced a contraction in its international sales, where revenue pulled back by 5% from 2021.

Another result that worried investors was Amazon’s profitability.

The group reported an operating profit of $2.5 billion, which was 48% lower than the previous year’s $4.9 billion.

The chart below shows how Amazon’s annual operating profits have declined since mid-2021.

Amazon’s Q3 net income also came under pressure and fell by 9% from its 2021 level.

The net income followed the same trend as Amazon’s operating income, which was a worry among investors.

Amazon offers significant upside

Goldman Sachs and JP Morgan lowered their 12-month expected price target of Amazon following its lower-than-expected quarterly results.

However, despite the lower targets, it still offers investors significant upside from the current levels.

Goldman Sachs has a positive outlook for Amazon with a buy recommendation at a 12-month expected price target of $165.

JP Morgan said Amazon’s pressures are largely macro-economically driven and that it still believes the company has strong fundamentals.

It has lowered its 12-month expected price target from $175 to $145, which is still significantly higher than the current $102 per share.


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