After Amazon's (AMZN) - Get Amazon.com, Inc. Report third-quarter earnings conference, Morgan Stanley's Brian Nowak lowered his price target for its stock from $4,500 to $4,000. But it appears holiday sales may have restored some of his bullishness — he just raised his target to $4,200, implying a 29% upside.
However, Nowak has issued a warning: Amazon needs to improve its spending disclosure if it wants to regain the market's confidence.
Let's consider what this analyst had to say.
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In 2021, Amazon had to deal with growth deceleration, retail share loss, rising labor costs, and decreasing profitability. These factors caused the stock to lag both the S&P 500 and the Nasdaq Composite — not to mention every other FAANG stock.
Has Amazon been investing to reverse these effects? Not a doubt. Yet Morgan Stanlet's Brian Nowak believes the market needs more details about how exactly the Seattle behemoth spends its cash and what it expects to achieve.
According to the analyst, in case of tech companies, there's a positive correlation between improving disclosure practices and the trading multiples the market is willing to pay.
"Better visibility into Amazon's estimated ~$19 billion spent on engineers per year (excluding AWS) and emerging 'other bets' projects could help investors better understand the health of its core retail business," Nowak wrote.
The Billion-Dollar Opportunity
At the end of 2021, Nowak also mentioned expecting Amazon to add an extra billion dollars to its bottom line by simply raising its FBA (Fulfilled by Amazon) fees. FBA is the company’s logistics and storage service for third-party sellers.
However, the analyst noted that an increase in Amazon’s FBA fee “may not be material alone,” but that it is just one of the “many levers and factors” which could enable Amazon to “deliver stronger multi-year profitability.”
Examples of other levers would include an ease of COVID-related costs and a possible price hike in Prime membership.
What Wall Street Has to Say
After Goldman Sachs, Bank of America, and UBS analysts, it was the firm Stifel Nicolaus’ turn to weigh in. Analyst Scott Devitt reiterated his price target of $4,400, which he initially gave right after Amazon disclosed its third-quarter results.
At the time, Devitt expected Amazon to be a “big outperformer in 2022.” Sticking to his target price must be a sign his beliefs have not changed.
RBC Capital’s Brad Erickson is not quite as bullish. The analyst lowered his AMZN price target from $4,150 to $4,000. Still, Erikson believes the company has great potential to outperform the market this year.
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(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)