Analyst unveils new Amazon stock price target ahead of earnings

Here's what could happen to Amazon's shares next.

Jan 25, 2024 - 08:30

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Analyst unveils new Amazon stock price target ahead of earnings

Quick--what company do you think of when you hear the words "online shopping"?

If you said Amazon (AMZN) - Get Free Report, you've got plenty of company.

A Bank of America survey last month found that an eye-popping 64% of consumers search Amazon first when they want to buy stuff.

An Amazon stock analyst has updated his outlook with a new price target.
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This is miles ahead of Alphabet's (GOOGL) - Get Free Report Google, the most popular search engine on the planet, which pulled in 14% of consumers' votes, and retail kingpin Walmart (WMT) - Get Free Report, which attracted 7% of the respondents.

In addition, 78% of the respondents said they have a Prime membership and an industry-leading 45% (net) intend to increase their shopping with Amazon.

Why? It's pretty simple. Twenty-nine percent said it's Amazon's low prices. They're also fans of fast and low-cost shipping, selection, and a user-friendly website.

Despite seemingly everyone already using Amazon to buy just about everything. That's not true. At least, not yet. Online shopping is a relatively small but growing portion of U.S. retail sales.

According to the U.S. Census Bureau, e-commerce sales reached $284.1 billion in the third quarter of 2023, up 7.6% from the year-ago period and accounting for 14.9% of total sales.

Analyst bumps his stock price target

Amazon is one of the famed "Magnificent Seven" stocks, a basket that includes some of the biggest tech names in creation. It's scheduled to report fourth-quarter earnings on Feb. 1.

A year ago, the company, which was founded in 1994 by Jeff Bezos, posted fourth-quarter earnings of 3 cents a share on revenue of $149 billion.

This time around, Wall Street is looking for the internet behemoth to report earnings of 79 cents a share on revenue of $165.9 billion, according to FactSet.

The expected big lift in results isn't lost on Wall Street.

Telsey Advisory raised the firm's price target on Amazon.com to $185 from $165 on Jan. 24 while keeping an outperform rating on the sales.

The firm said it is raising its fourth and 2024 estimates to reflect anticipation of a "solid" 2023 holiday season.

This includes the good early start related to the Prime event in October, gains from faster fulfillment, a stabilization of AWS--Amazon Web Services, the company's cloud computing platform--and a greater focus on profits, the analyst Joseph Feldman said in a note to investors.

The AWS segment includes sales of compute power, storage, database, and other services for startups, enterprises, government agencies, and academic institutions. Many of them are using AWS to train and run their AI projects.

AWS, which is Amazon's main profit source, has seen its market share grow to 50.1% among the top 10 cloud providers, according to research company HG Insights, with 2.38 million businesses buying AWS cloud computing services

The firm said the AWS customer growth rate is the highest among global cloud providers at 31%.

"Overall, we believe Amazon should continue to gain market share by leveraging its sticky Prime member base, small business relationships, and technological edge," Feldman wrote.

Importantly, he said, "We expect to see stabilization at AWS, with signs of potential gains from the AI-related shift in the technology industry."

Transforming customer experience

Real Money columnist Stephen Guilfoyle said the company’s success continues to rise and fall with the level of success at AWS... which is not just data center cloud services at this point, but also where the cloud meets AI."

Feldman said that Amazon's focus on newer businesses, such as grocery, pharmacy, fashion, home, private brands, third-party, same-day/one-day delivery, Amazon Logistics, and telehealth, should make the company more valuable.

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"The solid growth and profitability of AWS, as well as its media and advertising offerings, should continue to outperform the company average and support retail," he said.

In the fourth quarter, Feldman said he expects Amazon’s sales to benefit from the ongoing structural shift toward online, expansion of products, services, and markets, and gains from increased Prime members.

Like every other aspect of human existence, artificial intelligence is expected to turn the retail sector upside down and shake it by its ankles.

During an interview with Fortune CEO Alan Murray at the World Economic Forum in Davos, Switzerland, Amazon's CEO Andy Jassy said that he sees two sides of AI.

"The opportunity and risk are pretty similar in that there is this wildly transformative, disruptive technology, generative AI that you can't get through any conversation without talking about," he said.

Jassy, who said Amazon is building about 60 applications, noted that AI "really has the chance to transform virtually every customer experience."

Nearly ten years ago, Amazon launched Alexa, and roughly 71.6 million people in the U.S. use the virtual assistant technology, by one estimate, and 25% of U.S. households have at least one Alexa device.

Jassy said the company is building a much more expansive large language model to make Alexa "the world's best personal assistant."

He also stressed that AI is still in its early stages.

"We're about three steps into a marathon now," he said, "but our customers really like what we're doing."