Amazon.com, Inc. failed to meet the expectations of Wall Street on Friday morning, but not everyone is disappointed. In a short note in response to the release Victor Anthony of Aegis Capital actually increased his price target on the firm. The increase was $100, from $1,069-$1,171. That’s a ringing endorsement on a day the firm needs a boost.
That said, Mr. Anthony is very positive on the future of Amazon. He wrote “Our thesis on the stock is unchanged. Buy the stock for the share gains in retail, strong AWS growth and overall company margin expansion overtime despite heavy investments.”
That’s a statement that runs in line with most of Wall Street’s consensus thought. Jeff Bezos has ever really been interested in profits, and it seems that he has returned to that philosophy.
Amazon stock gets slammed
Before the market opened on Friday morning Amazon stock was trading down more than 3 percent. That’s not the most dramatic fall in the stock’s history. It is a movement, however, that signals big surprise on Wall Street.
On Thursday evening Wall Street was expecting Amazon.com, Inc. to unveil earnings of about $1.41 per share. Instead Jeff Bezos’ accounting team revealed the firm 40 cents per share. That’s a 77 percent decrease from profits in the same quarter last year.
For any other company a miss like that would result in a lot more than a 3 percent dip. Amazon, however, has been generally resistant to post-earnings dips even when it disappoints. That, and the fact it’s an almost-profitless behemoth, is one of the biggest mysteries of the firm.
The reason for the lower profit was a rise in costs. Those were particularly large in fulfillment, where costs rose 33 percent year on year. Costs rose by 43 percent in technology and content spending, and 44 percent in marketing.
Those are massive price increases, and they show that the firm is continuing to invest in its customer relations. Fulfillment is the Amazon killer app. It’s what makes people keep coming back for more.
If Thursday’s earnings proved anything, it’s that people do indeed keep coming back. Total revenue grew 25 percent year on year. Cloud revenue grew by 42 percent.
Amazon may still be a worthy bet
Victor Anthony’s $100 price target increase may not attract too many new investors to the stock. What it does, however, is bluntly restate the reasons it was attractive in the first place. The Seattle, Washington firm is growing quickly in multiple areas, and its future still looks bright to Wall Street.
Mr. Anthony wasn’t alone in his assessment on Friday morning. Lloyd Walmsley of Deutsche Bank set his price target for the firm at $1,175 after the earnings release. He’s looking at Amazon.com, Inc. as a five-year long term bet.
Meanwhile, that appears to be the way a lot of Wall Street is looking at the firm this morning. The faith in Jeff Bezos and his team to deliver is extraordinarily strong. Walmsley said that management has “an enviable track record of focusing on maximizing LT FCF[Long Term Free Cash Flow].”
Investors who are selling stock this morning will be wondering if Bezos agrees with Keynes on the length of the “Long Term.”