The Street's relentless Amazon.com Inc. (AMZN) bulls continue to lift their price targets on shares of the online retail behemoth, predicting stock gains of up to 50% over 12 months even as shares pullback since the company reached the $1 trillion mark one month ago and the Street lowers revenue estimates.
Amazon's Revenue: Shaved Estimates
|Sales estimate for current qtr: -1.9%|
|Sales estimate for 2018: -1%|
|Sales estimate for 2019: -1.2%|
|Sales estimate for 2020: -1.8%|
Source: Y Charts Data
What It Means
Analysts attribute their optimism to Amazon's revenue potential across retail, its public cloud platform Amazon Web Services (AWS), advertising and its monthly Prime membership program. As these high growth businesses boost Amazon's top line, bulls expect the tech titan's earnings and stock price to follow suit.
"The increase in our price target is primarily due to higher long-term revenue and margin expectations driven by stronger than previously expected growth from Amazon’s retail, cloud, and advertising businesses," wrote analysts at Stifel, who predict a 25% gain in Amazon stock, as outlined by Barron's.
Stifel's upbeat note echoed an applause from Morgan Stanley, which lifted its price target and revenue estimates for Amazon's key businesses, highlighting AWS as the key driver.
Yet while some on the Street are raising Amazon's revenue targets, analysts as a group are shaving forecasts for the coming quarter, the full year, as well as 2019 and 2020, reflecting a more tempered outlook regarding the retailer. Since July 20, Amazon's average price target has been raised 14.6% to $2,179.02, while earnings per share (EPS) estimates for 2018 have grown 39.2%. Meanwhile, sales estimates for 2018 are down 1%.
Analysts' forecast also show revenue growth will decelerate in the next three years, which is likely to affect stock growth. That may make it much harder to come by a 50% return in Amazon stock over two years, which analysts at Jefferies are predicting, as reported by CNBC.
Amazon: Slowing Revenue Growth
|Revenue growth estimate for current qtr: +30.3%|
|Revenue growth estimate for 2018: +32.1%|
|Revenue growth estimate for 2019: +22.3%|
|Revenue growth estimate for 2020: +19.5%|
Source: Y Charts Data
Investors will closely watch the coming quarter's earnings to see if Amazon can hit targets and maintain strong revenue growth. The key to the shaved revenue estimates and slowing revenue growth forecasts is that investors may have to temper their euphoric forecasts for Amazon. (For more, see also: Seven Reasons Why Amazon Should Split in Two: Citi.)
Nonetheless, the majority of analysts on the Street are rooting for Amazon, with 43 out of 45 analysts rating at buy or outperform, according to Y Charts. Even with decelerated top line growth, bulls argue that revenue will remain robust.
The Street's average price target implies an 11.6% upside in Amazon shares. Closing down about 0.9% on Wednesday at $1,952.76, the stock reflects a whopping 67% gain year-to-date (YTD) compared to the S&P 500's 9.4% return over the same period. (For more, see also: 5 Reasons Amazon May Double to $2 Trillion.)