4 reasons why Amazon stock is getting nailed
By Kathi on Jul 30, 2021 | 02:30 AM IST
Amazon's
second quarter underscored its ongoing dominance in all things retail and cloud
services, but some squishy aspects to the earnings release have investors in
profit-taking mode.
Shares of the tech beast dropped more than 6% in pre-market
trading on Friday after the company surprisingly missed on sales estimates.
Several factors in the report are likely weighing on the minds of investors.
First, the headline sales miss marked the first time Amazon
(AMZN) missed consensus revenue forecasts in three years. Analysts pinned the
shortfall on slowing sales at Amazon's retail division as people become more
mobile after getting vaccinated for COVID-19. Recall that a year ago at this
time Amazon was posting mind-blowing sales gains as the pandemic kept consumers
inside and ordering online to an extent never seen before.
Amazon execs told analysts on the earnings call that Prime
member spending has moderated amid a pickup in mobility.
Second, Amazon's third-quarter guidance lacked oomph as the
company continues to invest in fulfillment capacity and workers to support its
growth. Moreover, the company outlined a $1 billion operating profit hit in the
quarter due to COVID-19 related costs.
For the third quarter, Amazon sees sales growth of 10% to
16% (slower than the second quarter rate of 27%). Operating profits are pegged
in a range of $2.5 billion to $6 billion (Street forecast was for $8.1
billion).
And then a few odds and ends are unlikely sitting well with
investors. On the earnings call, Amazon execs declined to commit to a second
Prime Day event this year (though it has been rumored). And Amazon's new CEO
Andy Jassy wasn't on the earnings call — it appears he will follow the route of
his former boss Jeff Bezos in that regard.
Nevertheless, here's how Amazon performed compared to Wall
Street analyst forecasts for the second quarter:
Revenue: $113.08 billion versus $115.06 billion expected
Diluted EPS: $15.12 versus $12.22 expected
Amazon Web Services (AWS) Revenue: $14.81 billion versus
$14.18 billion expected
Despite the mixed quarter and stock reaction, the Street
mostly came out in defense of Amazon's stock. Analysts at Piper Sandler,
Truist, Barclays, Keybanc and Baird all reiterated their buy ratings on
Amazon's stock.
"Amazon is planning to continue investing aggressively
in logistics despite expanding capacity by 50% in 2020. The headwind to operating
income from startup inefficiencies at newer facilities is being exacerbated by
a tight labor market and pull forward of Prime benefits like video in new
markets. As these temporary cost headwinds abate, we see operating income
margin and free cash flow better reflecting the benefit of faster growth in
AWS/advertising. We think Amazon is also adding capacity in order to eventually
launch broader same-day delivery offerings, which should help support
core-Retail in light of increased mobility and extend the competitive
moat," said Jefferies analyst Brent Thill in a research note to clients.
Thill reiterated his buy rating and $4,200 price target on
Amazon shares.