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Amazon.com Inc.’s stock is likely to gain in the fourth quarter after outperforming smaller rivals in the third quarter, boosted by another record Prime-like event in October, according to Benchmark.
“We believe that event once again shows just how in tune Amazon
AMZN,
is with the market dynamics, with our own checks in both e-commerce and advertising pointing to a trade-down/promotional-driven environment this holiday shopping period, which should lead to further share gains for Amazon in the fourth quarter,” analyst Daniel l. Kurnos wrote in a note to clients on Thursday.
Kurnos, who set a buy rating on Amazon stock, said he’s tracking internal tweaks at the e-commerce and cloud services giant aimed at improving profitability, which implies further near-term upside to operating margins.
Amazon is due to report its third-quarter earnings next week and Kurnos said he is expecting the numbers to show continued momentum — with one caveat.
“Consensus has already built in accelerating online stores momentum through 2024 despite economic challenges outside the U.S., coupled with significant margin expansion despite a more tepid AWS growth outlook, implying significant non-profit center margin improvement, while ignoring the FTC suit,” he said, referring to the antitrust suit the Federal Trade Commission launched against Amazon in September.
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“At least it leaves theoretical room for AWS to outperform from the gen AI craze over the medium-term,” the analyst wrote.
Forecasts for the coming holiday season and the state of the consumer are mixed. Recent studies from Deloitte and eMarketer — one was sponsored by Amazon Pay — both call for a return to double-digit growth and a return to more normalized spending patterns, despite price inflation and a less favorable economic outlook.
Deloitte called the resumption of student loan payments a “de minimis lump of coal,” Kurnos noted.
A Klaviyo/Qualtrics study published in early August, in contrast, was far more negative and jelled more with broader sentiment by calling for a reduction in gifting this year.
“Three consistent themes were present, however: 1) an increase in ecom[merce] vs. in-store; 2) greater spend on basic and lower value goods; and 3) a potential reversal in spend mix from experiences back to goods,” said the note.
Benchmark is expecting Amazon to post third-quarter revenue of $141.442 billion, which compares with the current FactSet consensus of $141.512.
But its forecast for per-share earnings of $1.06 was well ahead of the 58-cent FactSet consensus.
“Fourth-quarter guidance will be the driver as usual, however, where we are somehow $500 million ahead of consensus despite being almost $1 billion below the street in our online stores forecast,” said Kurnos.
“Again, barring a big drop-off in consumer behavior or an outsized ex-US impact, that could be an area of outperformance, especially considering another record holiday kickoff event, which could produce some revenue guidance outperformance assuming our other segment projections prove out,” he wrote.
Amazon’s stock has gained 53% in the year to date, while the S&P 500
SPX
has gained 12%.
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