Analyst Eric Sheridan dropped his rating and cut his 12-month price target by $75 to $375 over concerns of the e-retailing giant's disappointing fourth-quarter results, specifically a "surprise deceleration in revenue and paid unit growth" as well as a proprietary survey the company had commenced over the potential price raise for Amazon Prime in which consumers overwhelmingly said they would cut the cord with Prime if the price was hiked.
Sheridan cut his quarterly and full-year earnings estimates to "reflect a lowering of expected margin improvements in 2014/2015" as a result of "increased spending to add value and/or promote Prime membership," he wrote in a research note to clients.
"We are concerned that Amazon is facing the law of large numbers issue with its revenue base," Sheridan wrote. "So while many of our revenue re-acceleration trends did play out, we are concerned that their impact might not be as pronounced goring forward given the large base of revenues."
The analyst had upgraded the stock to a "buy" on Oct. 18, 2013, based on expectations that the company would see revenue "re-acceleration." However the most recently quarterly results in which Amazon missed revenue estimates now calls that into question, he stated.
Amazon reported on Jan. 30 a profit of 51 cents a share. Consensus estimates were calling for earnings of 66 cents a share. Net sales increased 20% from the year ago quarter to $25.59 billion, however Wall Street was expecting sales to rise 23% to $26.06 billion, according to Thomson Reuters.