Amazon's critical web services business has helped drive numerous earnings wins in recent years, but its revenue growth rate steadily slowed through 2019. Credit Suisse analysts believe the product still has plenty of room to run, and that a shift to targeting larger enterprise clients will drive gains in 2020.
Credit Suisse expects AWS marketing expenses to increase as Amazon targets new clients, and that the company will enter "a period of structurally lower margins" before the investment pays off. The bank maintained its outperform rating on Amazon stock, citing growth in its e-commerce segment through larger infrastructure, "upward bias" in AWS revenue forecasts, and the potential for "faster-than-expected" free cash flow growth.
JPMorgan: "One of our best ideas in 2020"
Price Target: $2,200
The strong holiday season can push fourth-quarter sales past Amazon's own guidance, JPMorgan analysts wrote in mid-January. Prime one-day delivery "should benefit" the company's holiday sales figures, but foreign exchange costs could present a counteracting drag on Amazon's bottom line.
AWS growth will continue to decelerate in the fourth-quarter, but "the secular shift remains early" and the web business "is well positioned," JPMorgan said.
JPMorgan recently highlighted Amazon as one of its "best ideas in 2020," viewing the company's fall from record highs as an opportunity to post healthy growth in the new year. The bank sees Amazon's prospects in the second half of the year as particularly enticing, with investments in AWS and marketing set to finally pay off. The fourth-quarter report will prelude a reacceleration in net sales in the first quarter of 2020, the analysts added.
Bank of America: "2020 ends better than it starts"
Price Target: $2,330
Bank of America expects fourth-quarter revenues to land modestly above analysts' consensus estimate. The bank's bull case involves an online store sales beat fueled by one-day shipping, as such a positive figure would show investment in the rapid shipping program quickly paying off. A bear case would include another quarter of slowing AWS growth and a negative revision for 2020 profits.
First-quarter guidance presents a sizable risk, but the Amazon "ecosystem" has been improved through delivery investment, a growing retail business, and AWS stabilization, the analysts noted. Wall Street should focus on strong retail sales and improving AWS trends if first-quarter projections fall under expectations, they added.
"We think 2020 ends better than it starts," the team wrote.
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