Skip to main content

Updated from 9:53 a.m. to include thoughts from Deutsche Bank analyst.

NEW YORK (TheStreet) - Amazon (AMZN) - Get Amazon.com, Inc. Report shares plunged 7.6% in early trading to $289.35 following the online retailer's disappointing quarterly earnings.

The Seattle's e-commerce giant's third quarter was marred by poor Fire phone sales, weak digital media sales and foreign exchange issues, among other issues.

The company reported late Thursday a net loss of $437 million, or 95 cents a share, compared to a net loss of $41 million, or 9 cents a share a year earlier, and expectations for a loss of 74 cents a share. Sales of $20.58 billion also came in shy of estimates.

Investors were also displeased with Amazon's sales growth forecast for the holiday quarter. The company forecast fourth-quarter sales to rise between 7% and 18% over last year, lower than the current average analysts' projection of 18% sales growth.

Here's what analysts have to say about Amazon.

Chad Bartley, Pacific Crest Securities (Outperform, $435 PT)

Results were disappointing, but much less so excluding the Fire phone. We are buyers of AMZN on weakness due to the relatively strong Q4 guidance, after adjusting for currency, and our new outlook for nearly stable operating margin in 2015.

At first blush, Amazon had a very difficult 3Q, missing revenue and profit estimates. However, we think the results and guidance, while not robust, are more in-line with consensus when adjusting for several one-timers and [foreign exchange]: 2) Gross profit grew ~30%; 3) gross margin and operating margin beat estimates; 4) N. America Media deceleration a negative on rent vs. buy shift; 5) Investments continue in Int'l, dragging margins lower and; 6) Revenue guidance in-line with Street at high-end ex. FX.

Amazon remains a category leader, investing in growth areas and while long term cash flow returns remain a question, we feel valuation is discounting the risk at these levels. Our year end 2015 price target shifts to $360 from $380, and is based on our central tendency of value methodology employing our sum of parts analysis as well as multiples of 15x EV/EBITDA and 35x P/E vs. revenue growth of ~20% and EBITDA growth >30%.

Jason Helfstein, Oppeneheimer (Outperform, $372 PT)

We are maintaining our Outperform rating, despite weaker 3Q gross profit and 4Q guidance, driven by the Fire Phone write-off. Excluding this charge, eCommerce GP/customer increased a healthy 10% y/y vs. +11% in 1H14. US EGM accelerated, while Int'l EGM growth was roughly the same, ex currency. Lastly, AWS growth accelerated q/q, and should grow sequentially in 4Q. However, we are decreasing our target to $372 from $415 on lower long-term estimates for Media, which is seeing materially slower growth. Management blamed weaker Media on less aggressive discounting vs. last year and shift in textbooks to rentals. We also believe that a larger Prime library is resulting in fewer media purchases. Decreasing '14E SOI by 5%, '15E largely unchanged.

Heath Terry, Goldman Sachs (Buy, $360 PT)

TheStreet Recommends

Amazon reported 3Q revenue of $20.6bn (+20.4% yoy vs. +23.2% in 2Q), at the midpoint of guidance but below consensus at $20.8bn. Adjusted op. income margin was -0.7%, below consensus at 0.0% on a $170mn Fire Phone inventory write-down. Ex-FX revenue growth decelerated to +20% from +22% in 2Q as NA media decelerated ~9pp on a tougher comp and the shift from textbook sales to rentals, while international growth slowed due in part to the Japanese consumption tax increase. 4Q revenue guidance of $27.3-$30.3bn was below consensus of $30.9bn while GAAP op. income guidance of $(570)-$430mn compared to consensus of $454.2mn. Despite these issues operating cash flow was $1.8bn, +27% yoy. We remain CL-Buy as we believe the investments in infrastructure currently pressuring margins will payoff in the form of additional market share gains and continued high returns on invested capital.

Stephen Ju, Credit Suisse (Outperform, $395 PT)

Ongoing investments into its many initiatives including AWS and geo expansion masked the gross margin expansion benefits in its retail business which was 239bp (less $170mm in Fire Phone write downs vs 226bp in 2Q14 and 175bp in 1Q14). AMZN continues to reap the benefits from fulfillment center maturation and shipping fee savings given closer proximity to its user base. As we do not believe management's discipline around investments has changed over the years, we remain buyers of AMZN shares and maintain our Outperform rating especially as it remains out of favor as the aforementioned margin expansion in its core retail franchise is strong evidence of its ability to deliver long-term shareholder value creation.

Ross Sandler, Deutsche Bank (Buy, $350 PT)

At first glance, AMZN's results and guidance looked weak, but after backing out the $170m write off for the Kindle Fire Phone, GP growth was 29% , solid and in-line with last quarter. Unit growth of 21% decelerated, but also didn't include the text-book rentals. 4Q guidance was weak across the board, with revenue growth of 12.5% at the mid point, reflecting a ~200bp deceleration in GP to 27% ex-fx. Frustration with AMZN is reaching peak levels, and we think shares could find support at 1x GMV, or around $280, but as we previewed we are struggling to identify a catalyst to break the negative momentum. Maintain Buy on long term outlook

TheStreet Ratings team rates AMAZON.COM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate AMAZON.COM INC (AMZN) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 23.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although AMZN's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average.
  • 36.46% is the gross profit margin for AMAZON.COM INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.65% trails the industry average.
  • Net operating cash flow has declined marginally to $862.00 million or 2.04% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, AMAZON.COM INC has marginally lower results.
  • In its most recent trading session, AMZN has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.

-Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.