Amazon’s (AMZN) - Get Amazon.com Inc. Report latest earnings conference has ignited the hopes of the company’s bulls. After a disastrous first quarter (Q1), when the Seattle behemoth presented its first bottom-line loss in nearly seven years, Amazon reported revenue growth in Q2.
Although, overall, the market was positively surprised — the stock rallied nearly 10% right after the disclosure, and many analysts revised their price targets for AMZN — there was one analyst who was actually disappointed.
Rosenblatt Securities’ Barton Crockett kept his "hold" recommendation, with a price target of $118. Let's discuss why.
Crockett: Amazon Is Far From Perfect
Amazon currently has two main businesses: online retailing and cloud computing services. E-commerce has been the jewel of Amazon’s crown, and it shone the most during the COVID pandemic in 2020. Since then, online retail has slowed.
But the company's cloud computing arm, Amazon Web Services (AWS), has never failed to surprise Wall Street. AWS was able to become Amazon’s main source of income, although generating significantly less revenue than retail.
In 2021, AWS brought the company 13% of its consolidated revenue, but 74% of its operating profit.
As the e-commerce segment faced several headwinds, analysts turned their eyes to AWS, which was registering two-digit growth every quarter.
That was enough to impress most analysts, but not Crockett, who argued Amazon’s Q2 earnings could be showing the company is losing space in the cloud wars.
"Sales in Amazon's cloud segment rose 33%, a deceleration from 37% in 1Q22, and slower than Microsoft (MSFT) - Get Microsoft Corporation Report Azure's 46% constant currency growth and the +40% we estimate for the comparable cloud computing portion of Google's (GOOGL) - Get Alphabet Inc. Report cloud segment," wrote the Rosenblatt analyst.
Crockett Often Goes Against the Herd
It’s not the first time Crockett has gone against the Wall Street herd. The analyst rated the stock as a hold just before this year’s Q1 earnings disclosure, with a price target of $150.
He argued the e-commerce segment would have its margins trimmed by inflation, because the industry’s very nature makes it impossible to roll price increases over to consumers.
Still, at the time, Crockett believed AWS was a promising business and would be enough to compensate for e-commerce’s further losses.
Because Crockett came to be disappointed with the AWS results, investors should watch Microsoft's and Google’s results closely in order to predict whether Amazon is really losing the crown of "Cloud Kingdom."
Wall Street’s Take
Unlike Crockett, who has set a price target of $118 on Amazon, Wall Street has grown more bullish on the stock since the last earnings conference.
In fact, Morgan Stanley’s Brian Nowak stated that Amazon has eased his fears about AWS deceleration, retail sales growth, and profitability, concluding that investors should become more confident in Amazon's 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA).
Bank of America’s Justin Post agreed by restating that Amazon remains BofA’s top 2022 FANG stock:
"Reduced headcount (100k fewer q/q employees), alleviating supply-chain issues, accelerating third-party revenue growth to 13%, AWS strength (growth in-line with our 33% est) were bright spots, with 3P revenue growth beating Street by 5pts (and limiting potential retail gross margin headwinds)," Post wrote.
Bank of America rated AMZN as a buy, with a price target of $170. Morgan Stanley has a slightly higher target: $175, which implies 21% upside.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)