A post-earnings plunge in Amazon’s stock isn’t shaking the confidence of Wall Street, which is staying largely upbeat on a view the company’s fundamentals will sharply improve later this year and into 2023.
“Amazon’s Q1 results and Q2 guidance were disappointing (sales and operating income) but don’t necessarily change the story, which is that growth should inflect in Q3 and set up for a stronger FY23,” Guggenheim analyst Seth Sigman said. “Amazon has gone through a major investment cycle, but some unique external factors (COVID, its related effects on labor, inflation, and the company’s significant outperformance early in the pandemic) have pushed out the harvesting period that tends to follow. Ultimately, we see those investments, including in supply chain capacity and people, supporting stronger market share gains and helping Amazon navigate the uncertain macro cycle ahead.”
The analyst reiterated a buy rating on Amazon’s stock.
But as Sigman’s noted, Amazon’s first quarter and guidance left much to be desired.
The company said late Thursday that first quarter profits were by a $6 billion hit from supply chain inefficiencies and general inflation. Amazon’s sale increase of 7% in the quarter, compared to a 44% rise in the same period last year, marking the company’s slowest growth rate in more than two decades.
Here is how Amazon performed versus Wall Street estimates:
Amazon outlined a potential $4 billion hit to profits in the second quarter from the same factors, and promised to bring spending more in line with sales trends into the back half of the year.
The confluence of negative factors to the earnings release hammered Amazon’s stock.
Amazon stock crashed 14% on Friday, the steepest one-day drop since 2006.
Sigman was joined in his optimism by Cowen analyst John Blackledge.
“There were bright spots in the quarter,” Blackledge said on Yahoo Finance Live. “They did say delivery speeds are kind of right there they were just before the start of the pandemic. So they will start to crank up one day and same day. Usually when you put a faster delivery speed on a product it drives higher purchase conversion, and so you are going to get that as we round through into next year. That coupled with easier comparisons as we get to the back half of the year, it’s a good setup for the top line. The historic investment cycle is coming to a close. So you should have margin upside in the back half of the year and as we get into next year,”
Blackledge reiterated an out-perform on Amazon as well.
Brian Sozzi, a former Wall Street analyst, is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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