Investing.com -- Morgan Stanley analysts said in a note Thursday that Wall Street's profit expectations for Amazon (NASDAQ:AMZN), particularly for the fourth quarter of 2024, may be overly optimistic.
The bank highlighted that despite long-term bullish prospects, near-term headwinds could impact Amazon's earnings before interest and taxes (EBIT) guidance.
The analysts see "tactical risk to 4Q EBIT" as the company continues to invest heavily in its lower-margin essentials business.
According to Morgan Stanley, Amazon's push to expand its essential goods offering, a key growth area, could hurt short-term profits.
"We see AMZN's high and growing focus on lower-priced, lower-margin essentials driving merchandise margin pressure," the bank states.
The pressure, combined with a competitive holiday season and cautious consumer spending, is seen as potentially weighing on Amazon's North America retail profit growth.
The bank expects fourth-quarter EBIT to come in around $1 billion to $1.5 billion below current Wall Street estimates of $17.5 billion.
While this outlook may suggest a near-term pullback, Morgan Stanley remains optimistic about Amazon's long-term growth, particularly as the company looks ahead to 2025.
The analysts point to several profit drivers, including improved cost efficiencies and a potential $2 to $4 billion in corporate savings. They also note that Amazon's Kuiper satellite project, which some fear could be a financial drain, is "likely manageable" with an annual cost of $600-$700 million.
Morgan Stanley maintained its $210 price target for Amazon, expecting a rebound in profitability beyond 2024. "We view these profit challenges as temporary and not structural," the bank says, adding that it remains "buyers on weakness" as they look toward multiple profit drivers into 2025.