After a year of remarkable gains, e-commerce giant Amazon.com (NASDAQ:) is now in rough water. collapse in more than a year, after the e-tail giant disappointed investors with its latest , released Thursday after the shutdown.
The Seattle-based tech giant had revenues of $113.1 billion, a 27% increase in the period ending June 30, slightly missing the analyst consensus estimate of $115 billion. Earnings were $15.12 per share for the period, surpassing the median estimate of $12.28.
Investors also saw better than forecast earnings and strong performance from the company's advertising business and Amazon Web Services, the company's cloud unit. AWS revenue rose 37% in the quarter to $14.8 billion — the largest year-over-year revenue increase in two years. The company's "other" revenue category, primarily ad sales, rose 87% to $7.92 billion. Both units exceeded analyst estimates. But beyond these fantastic growth numbers, Amazon didn't have much to satisfy growth-hungry investors, worried that the remarkable run the online retailer had during the pandemic may already be in the back-view mirror.
Shareholder focus is on the company's core e-commerce business, which is indeed slowing down, especially at the same time as founder Jeff Bezos handed over the executive role to a longtime lieutenant , Brian Olsavski. In a conference call, the new CEO didn't mince words about the situation, telling analysts that the sales slowdown will continue through the rest of the year.
"People are going out more and doing things other than shopping," Olsavsky said in an interview with reporters, referring to the reopening of the economy after more than a year of restrictions that created a favorable environment for online shopping.
Revenues will be $106 billion to $112 billion in the period ending September, Amazon said. Operating profit will be $2.5 billion to $6 billion. Analysts forecast an average of $8.11 billion in profit on $118.7 billion in revenue, according to data collected by Bloomberg. Despite the setback on the earnings front, the majority of Wall Street analysts remain optimistic about the long-term outlook and its leadership position in e-commerce. While some have adjusted their price targets for the stock as sales slow, many believe that any lingering weakness represents a buying opportunity. Analysts said in their note that the company is becoming more valuable in the post-pandemic environment:
"We understand that Amazon stock is likely to fall given the soft results of 2Q21 and lower outlook for 3Q21. That said, we believe that Amazon is performing at a high level and should continue to gain market share by using its sticky customer base, small business relationships and retail consolidation.Its focus on newer businesses and initiatives—grocery, pharmacy, fashion, home, private label, third-party, same-day/one-day delivery and Amazon Logistics—makes Amazon more valuable.”
Stifel Nicolaus, who also has a buy recommendation for the stock with a price target of $4,400, said:
“We now have a better view of the 2H and estimates have been adjusted to better reflect the new normal as we emerge from the pandemic. We believe the setup is attractive now that stocks are on the other side of the COVID comp reset. We would be buyers of the stock's decline as a result of tonight's report. "
Of the 49 analysts surveyed by Investing.com, 48 had a buy rating on AMZN, which it called a stock "will outperform."
Chart: Investing.com
The average 12-month price target provided by respondents was $4,169, or a +25% increase.
Bottom Line
Stocks of Amazon could be more at a disadvantage after weak Q3 guidance for key e-commerce sales, following brisk buying activity during the pandemic. But that weakness provides an entry point for investors sitting on the sidelines, given the company's rapidly growing revenues from its cloud and advertising business, along with its still dominant position in the e-commerce arena.
