Amazon’s stock experienced a sharp decline of nearly 9% on August 1, following the company’s second-quarter earnings report. This drop marked the most significant one-day fall since April 2022, according to Bloomberg data.
Despite the company’s successful Prime Day event in July, which bolstered its profile, Amazon’s earnings per share came in at $1.26, surpassing the forecast of $1.03. However, its revenue of $147.98 billion, a 10% increase from the previous year, fell short of the anticipated $148.68 billion.
For the third quarter, Amazon forecasts revenue between $154 billion and $158.5 billion, slightly below the consensus estimate of $158.24 billion. The company attributes this cautious outlook to consumers’ spending habits, which remain restrained despite easing inflation. Amazon anticipates this trend of seeking bargains will persist into the September quarter.
Year-to-date, Amazon’s stock is up 9.7%, compared to the S&P 500’s gain of 11.8%. This divergence, coupled with mixed earnings results, has led analysts to reevaluate their stock price targets for the company.
Revenue Segments and Market Challenges
Amazon’s revenue is divided into three key segments: North America, International, and Amazon Web Services (AWS). The North American and International segments showed a deceleration in revenue growth during the second quarter. North American sales grew by 9% to $90 billion, while International sales rose by 7% to $31.7 billion. These growth rates are down from 11% and 10% in the previous year, respectively.
CEO Andy Jassy highlighted a trend of reduced consumer spending on discretionary items such as electronics, reflecting a broader economic strain. CFO Brian Olsavsky noted that consumers are continuing to seek lower-priced products and deals, a pattern expected to persist into the next quarter.
In contrast, AWS saw a 19% increase in sales year-over-year, up from a 12% growth rate the previous year. Despite its impressive performance, AWS revenue of $26.3 billion accounts for only 18% of Amazon’s total revenue. AWS remains a leader in cloud services with a 32% market share, according to Synergy Research Group. Nevertheless, it faces growing competition, particularly from Microsoft’s Azure and Google Cloud, which are expanding their market shares.
Revised Stock Price Targets
Following the earnings report, Morgan Stanley reduced its price target for Amazon from $240 to $210 but maintained an Overweight rating. The downgrade reflects concerns about slower-than-expected improvements in retail profits and the impact of shifting consumer preferences towards lower-priced items. Morgan Stanley also lowered its EBIT and free cash flow forecasts for 2025 by 12% and 9%, respectively.
Similarly, TD Cowen and Wells Fargo adjusted their price targets for Amazon, setting them at $230 and $232, down from $245 and $239. Both firms noted AWS’s growth but expressed apprehension about the company’s short-term prospects due to weaker-than-expected Q2 revenue and cautious Q3 guidance.
Conversely, Barclays raised its price target for Amazon from $220 to $235, maintaining an Overweight rating. Barclays attributed this adjustment to the broader challenges faced by major tech companies, including the high expectations for earnings and concerns about future capital expenditures and depreciation related to artificial intelligence investments.
As of August 6, Amazon’s stock was trading at $161.93.
