Amazon analysts are eating up its ramped-up Prime shipping plans - even as the e-commerce giant's growth slows

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Amazon analysts are eating up its ramped-up Prime shipping plans - even as the e-commerce giant's growth slows

Jeff Bezos

REUTERS/Gary Cameron

Jeff Bezos

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  • Amazon shares traded modestly higher on Friday after the e-commerce giant reported first-quarter results that topped analysts' expectations.
  • Analysts were particularly bullish on its Prime shipping announcement, but noted growth is slowing across various segments.
  • JPMorgan analysts commented the new free one-day shopping option reflected an increasingly competitive retail environment.
  • Watch Amazon trade live here.

Amazon analysts' notes to clients were littered with price-target increases in the wake of the e-commerce giant's first-quarter report. They praised the company's plan to offer free one-day shipping for Prime items , and were generally excited about the company's long-term potential.

But it's impossible to ignore the fact that growth is slowing across metrics, from Amazon Web Services to capex/capital leases to overall revenue. Additionally, its second-quarter operating profit guidance fell short of analysts' estimates.

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"At a high level Amazon's 1Q19 results were good but not great," Citi analysts led by Mark May wrote, pointing to slowing revenue, gross profit, and AWS growth.

Still, the analysts noted operating margins were strong "in all segments," and hiked their price target to $2,200 - 16% below where shares settled on Thursday.

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Read more: Amazon's Q1 report offered a mixed bag for investors - a huge earnings beat but disappointing guidance

JPMorgan analysts, for their part, said while they liked the long-term opportunities associated with the new one-day Prime free-shipping offer, it likely reflects a more competitive retail space.

"We believe the move is consistent with AMZN's long-standing goal of convenience & selection, but also likely reflects the increasingly competitive retail environment," they wrote.

Others were more bullish on the shipping announcement.

"This IS Big News, if you believe in Shipping Elasticity, which we do," RBC Capital Markets analysts led by Mark Mahaney wrote. "This could be a key growth catalyst for Amazon for some time."

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Here's a snapshot of what other Wall Street analysts told clients:

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JPMorgan: 'Potential to Accelerate Growth in 2Q, But At a Cost'

JPMorgan: 'Potential to Accelerate Growth in 2Q, But At a Cost'

Rating: Overweight

Price target: $2,200 (upped from $2,050)

Analysts led by Doug Anmuth bumped up their price target and noted the company's plans to shift its Prime free two-day shipping program ton one day.

"We believe the move is consistent with AMZN's long-standing goal of convenience & selection, but also likely reflects the increasingly competitive retail environment," they wrote.

Amazon's $800 million investment is expected to ramp up in the third and fourth quarters as it expands one-day selection and wider geographic rollout, the firm added.

Unit growth was one area that disappointed — the increase of 10% in the quarter came in below the firm's expectations and slowed from 14% in the prior quarter.

"Overall, while there are a lot of moving parts, we come away with more confidence in Amazon's ability to stabilize & potentially accelerate revenue growth, and more clarity on AMZN's 2019 investment spend with Prime 1-day shipping," they said.

RBC Capital Markets: 'This IS Big News, if you believe in Shipping Elasticity, which we do'

RBC Capital Markets: 'This IS Big News, if you believe in Shipping Elasticity, which we do'

Rating: Outperform

Price target: $2,300

Analysts led by Mark Mahaney were particularly bullish on Amazon's cutting its Prime free-shipping capabilities from two days to one day.

"This IS Big News, if you believe in Shipping Elasticity, which we do," they wrote, adding "could be a key growth catalyst for Amazon for some time."

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Susquehanna: 'Strength Continues'

Susquehanna: 'Strength Continues'

Rating: Positive

Price target: $2,250

"We remain Positive on Amazon as we see the company as a long-term secular grower with leadership positions in three large growth markets — e-commerce, cloud, and advertising," analysts led by Shyam Patil wrote in a note to clients on Friday.

The analysts were encouraged by Amazon's sales outlook, and said that while delivery investments are expected to make 2019 "more of an investment year," the long-term growth picture is intact.

Future catalysts for the stock include "intra-quarter e-commerce data, company-specific events (such as the AWS summits), AWS product announcements, pricing decisions, and quarterly results."

Goldman Sachs: 'Revenue growth decelerates as margins hit record high'

Goldman Sachs: 'Revenue growth decelerates as margins hit record high'

Rating: Buy

Price target: $2,400 (upped from $2,100)

"We continue to believe AMZN represents the best risk/reward in Internet given the relatively early-stage shift of workloads to the cloud, the transition of traditional retail online, and share gains in its advertising business, the long-term benefits of each we believe the market continues to underestimate for Amazon," Heath Terry wrote in a note to clients on Friday.

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Citi: '1Q19 Report Good But Not Great'

Citi: '1Q19 Report Good But Not Great'

Rating: Buy

Price target: $2,200 (upped from $2,000)

"At a high level Amazon's 1Q19 results were good but not great," analysts led by Mark May wrote in a note to clients late on Thursday. "Revenue was at the high end of the guidance range but slightly below (1%) forecasts."

While revenue grew 17% in one quarter, that pace fell below the 22% fourth-quarter growth and 23% third-quarter growth, excluding Whole Foods, they noted.

The firm cited other metrics' growth that slowed, including gross profit, core non-adjusted retail sales, and Amazon Web Services.

Still, the analysts believe operating margins were strong "in all segments."

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