With recession fears looming, Amazon.com Inc.’s cloud service business could be under pressure warns Mizuho Securities analysts in a note heading into the tech giant’s second-quarter earnings announcement scheduled for Thursday.
Mizuho analysts recently conducted a call with IT service firms, finding that chief information officers forecast “a shallow recessionary scenario” and will reduce their spending by about 10 points in fiscal 2023.
“To mitigate any weakness in demand, leading cloud vendors like Oracle and NetSuite started to offer meaningful discounts to gain share in the low-end of the market,” Mizuho wrote in a recent note.
“At the same time, our checks indicate that AWS is considering a discount of up to 10% in September/October for new contracts/renewals when IT budgets are set for
FY23.”
Mizuho rates Amazon
AMZN,
stock buy with a $155 price target.
Amazon completed a 20-for-1 stock split in June.
See: Big Tech earnings are about to determine the direction of the market
“Despite attractive valuation, we believe the stock lacks short-term catalysts due
to a likely downward revision cycle,” analysts said.
MKM Partners also anticipates cloud service price cuts, but analysts there say that a slowdown in AWS’ business will happen sooner rather than later.
“We view engagement trends in social media and streaming as revenue headwinds for AWS’ usage-based pricing model (Netflix, Snap, Spotify, Pinterest, and Meta, among the top 20 customers at AWS, in our opinion),” analysts wrote in a note published Monday.
“Plus, softness in VC-funding to start-ups likely finds its way to AWS softness in 2H22 (we estimate tech startups make up 10% of AWS revenue).”
MKM Partners rates Amazon stock buy with a $165 price target, down from $180.
Amazon has an average buy rating and average target price of $167.80, according to 51 analyst groups polled by FactSet.
Here are a few things to know about Amazon in preparation for the earnings announcement:
Earnings: The FactSet consensus is for earnings per share of 12 cents per share, down from 76 cents last year.
Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, forecasts EPS of 21 cents.
Amazon missed the FactSet EPS consensus in the last quarter.
Also: Amazon looks to cut costs after first loss in seven years sends stock careening lower
Revenue: The FactSet consensus is for revenue of $118.99 billion, up from $113.08 billion last year.
Estimize forecasts revenue of $120.29 billion.
Amazon reported revenue in line with the FactSet consensus last quarter.
Stock price: Amazon shares have dropped 34% over the past year, and are down 17.4% for the last three months.
The benchmark S&P 500 index
SPX,
has slid nearly 8% for the past three months.
Other items:
–Prime Day will give Amazon a boost in the third quarter and possibly set the stage for another shopping event. Amazon Prime Day took place July 12 and July 13, which is too late for the second quarter, but analysts say it will be beneficial to the third quarter.
“[W]e believe Prime Day sales were better than expected while ad spend on
Amazon has stayed above the industry trendline,” MKM said.
“We estimate Prime Days accounted for ~$3.25 billion in incremental sales in 3Q, and ~$6.0 billion to $6.5 billion in total merchandise sales.”
JMP thinks the contribution is almost $3.85 billion in net sales, and anticipates a repeat of the shopping holiday this year.
“Overall, we view the performance of Prime Day favorably and as likely giving Amazon confidence in a resilient consumer for a potential second Prime Day in 4Q22,” wrote JMP in a note.
-Amazon has made a number of big announcements in recent months. Amazon could provide an update on any number of announcements it has made in recent weeks, including expanded drone service in Texas, a rollout of Rivian Automotive Inc.
RIVN,
EVs for last-mile delivery, and Amazon’s $3.9 billion acquisition of One Medical.
And: Rivian stock rises as Amazon starts using EV maker’s electric delivery vans
Don’t miss: How Amazon’s $3.9 billion wager on primary care could change your Prime membership
Despite the challenges of trying to succeed in the complicated healthcare industry, GlobalData was upbeat about the acquisition.
“The acquisition of One Medical gives Amazon a solid platform from which it can develop new health offerings and test ideas,” GlobalData said following the acquisition announcement.
“It also gives them a sizeable, but not overwhelming, business that they can integrate into their wider healthcare proposition.”
And Third Bridge’s George Congdon called that deal a “seamless fit alongside the company’s employer-focused telemedicine offering Amazon Care and their prescription business Amazon Pharmacy.”
Read: Amazon’s One Medical acquisition sparks data privacy backlash: ‘What could go wrong?’
