On Friday, JPMorgan adjusted its outlook on shares of Amazon.com Inc. (NASDAQ:AMZN), reducing the e-commerce giant's price target from $240.00 to $230.00, while maintaining an Overweight rating on the stock. The firm's analysis indicated a shift in near-term drivers toward Amazon Web Services (AWS) after a period of accelerated retail growth and margin expansion.
The report noted that AWS delivered a second consecutive quarter of robust revenue growth at 19% and high margins, at 35.5% or 33.5% excluding certain adjustments. This performance contrasted with Amazon's retail segment, which, despite a 9.3% growth in foreign exchange-neutral terms, experienced slower sales in discretionary and big-ticket items.
Despite the retail challenges, including softness in high-margin advertising revenue growth and investments in Amazon's satellite broadband network, Project Kuiper, JPMorgan remains optimistic about the long-term expansion of retail margins. The firm anticipates that AWS will increase capital expenditures in the second half of the year, which is expected to benefit from added capacity.
JPMorgan also highlighted Amazon's potential to reduce costs through improved shipping, inventory placement, and robotics, although it acknowledged some market concerns regarding a slight decline in the AWS backlog. The firm's revenue projections for 2025 and 2026 were lowered by less than 1%, with operating income estimates decreased by approximately 3%, and free cash flow (FCF) expectations reduced by around 15%, mainly due to higher projected capital expenditures.
Despite the lowered price target, JPMorgan reaffirmed its positive stance on Amazon, citing a projected free cash flow compound annual growth rate (CAGR) of 36% from 2023 to 2026. The firm's valuation is based on approximately 24 times its estimated 2026 free cash flow of $92 billion.
In other recent news, Amazon.com Inc. has been the subject of several analyst adjustments following its second-quarter earnings report. JPMorgan lowered its price target for the e-commerce giant from $240.00 to $230.00, maintaining an Overweight rating.
The firm highlighted Amazon Web Services' (AWS) robust revenue growth of 19% and high margins, despite slower sales in the retail segment. On the other hand, Roth/MKM increased its price target for Amazon to $215, maintaining a Buy rating. The firm noted Amazon's third-quarter revenue guidance appears modest, with softer anticipated margins.
Goldman Sachs also adjusted its price target on Amazon shares, decreasing it from $250.00 to $230.00, while maintaining a Conviction Buy rating. This adjustment was made in light of mixed third-quarter outlooks and discussions among investors regarding the balance between Amazon's investment pace and current profitability levels. Meanwhile, Citi maintained a Buy rating and a $245.00 price target for Amazon, expressing confidence in the company's growth trajectory.
These adjustments come after Amazon reported a slowdown in online sales growth, with consumers increasingly seeking more affordable purchasing options. Despite these challenges, Amazon continues to invest in its future, with capital investments for the first half of 2024 amounting to $30.5 billion, exceeding forecasts.
The company plans to increase these investments in the second half of the year, primarily driven by infrastructure development for AWS. As these situations unfold, investors will be closely monitoring their impact on Amazon's performance and future prospects.
InvestingPro Insights
As we assess the potential of Amazon.com Inc. (NASDAQ:AMZN) following JPMorgan's updated outlook, InvestingPro data shows a company with a substantial market presence and robust financial metrics. With a market capitalization of $1.92 trillion and a revenue growth of 12.54% in the last twelve months as of Q1 2024, Amazon continues to demonstrate its ability to expand and generate significant revenue. Its gross profit margin stands at an impressive 47.59%, underscoring the company's efficiency in maintaining profitability.
InvestingPro Tips suggest that Amazon is trading at a high earnings multiple, with a P/E ratio of 50.32, indicating that investors may expect high future earnings growth. Additionally, the stock generally trades with low price volatility, which could be a sign of market confidence in the company's stability. There are 13 additional InvestingPro Tips available for Amazon, which may provide further insights into the company's performance and outlook.
Amazon's position as a prominent player in the Broadline Retail industry is reinforced by its significant operating income of $47.38 billion and an EBITDA of $96.61 billion for the same period. The long-term potential of Amazon is also highlighted by a strong return over the last decade and the analysts' prediction that the company will remain profitable this year. These factors, combined with JPMorgan's optimistic view of Amazon's long-term retail margin expansion, suggest that the company's strategic investments and market leadership are likely to continue driving growth.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.