Three months back, Amazon.com Inc. executives sent investors scrambling for their dictionaries as they called out “attenuating” — or lessening —pressures on the AWS cloud-computing business.
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But Thursday afternoon, Amazon’s
management team delivered the message Wall Street was looking for in familiar language: Amazon Web Services saw “an acceleration,” in fourth-quarter revenue, according to Chief Financial Officer Brian Olsavsky, and executives “expect accelerating trends to continue into 2024.”
Those were the “magic words” investors wanted to hear, MoffettNathanson analyst Michael Morton wrote in a note to clients. This sort of talk, along with Amazon’s latest results, made for what he called “the cleanest quarter in recent memory.”
He rates the stock a buy with a $228 target price, up from $218 before the report.
Amazon’s stock rose 7.9% in Friday action, leading to a $130 billion increase in the company’s market capitalization.
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Morton wasn’t the only one to note the cleanliness of Amazon’s quarter. Bernstein’s Mark Shmulik said that “every number” he looked at in Amazon’s report seemed solid, including the company’s big beats on operating income and revenue.
“So you’ll forgive us if we sat listening to the earnings call picturing Andy Jassy with a shaved head, gold hoop earning, and all-white shirts and pants — this was his Mr. Clean moment,” he wrote.
Shmulik highlighted Amazon’s ability to top expectations with its latest operating-income numbers and impressive outlook given that “everyone” on Wall Street seemed to love the stock as a 2024 pick for the “same” thesis that was in large part about inflecting operating income.
“Importantly it appears that cost savings efforts around regionalization and cost to serve are durable, enabling [North America] margins to surpass 6%,” he wrote, while upping his target price to $200 from $175 and sticking with an outperform rating.
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BMO Capital Markets analyst Brian Pitz took a similar view of the opportunities ahead thanks to Amazon’s pivot to a regional fulfillment model.
“Amazon’s regionalization efforts within its retail fulfillment network are producing quicker delivery speeds on a growing number of products and yielding greater frequency for Prime members,” he wrote.
That dynamic “puts Amazon on a path to unlock more meaningful operating income and ultimately free cash flow generation,” according to Pitz. “While these investments primarily benefit the U.S. consumer, there are opportunities to improve international unit economics in geographically large regions (Brazil/India) as these regions continue to scale.”
He has an outperform rating on the stock and a fresh target price of $205, up $5 from before.
JPMorgan’s Doug Anmuth called out generative artificial intelligence as a potential AWS driver down the line, even though it adds only a “small contribution” nowadays to the business, which has a roughly $100 bollion run rate.
“We believe AWS will gain meaningful traction in Gen AI over the coming year as customers look to pair their Gen AI efforts with existing data, leverage AWS’ wide range of [large language models], & capitalize on AWS’ full stack approach,” he wrote.
Overall, Anmuth noted that Amazon “has significant momentum heading into 2024 and management is confident around both AWS acceleration & further retail margin expansion.”
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