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Amazon (NASDAQ: AMZN) had another hot week as earnings releases from major stores showed the deterioration in customer spending was worse than expected.
Walmart (WMT) and Target (TGT) have posted troubling signs in their recent earnings releases. Nevertheless, macroeconomic uncertainty and emerging inflation have affected consumers. As a result, those corporations see a bleaker picture as consumers move away from discretionary spending. and durable goods.
Shares of AMZN and Costco (COST) also fell sympathetically as the market adjusted its expectations for retailers.
However, AMZN’s inventory did not fall below last week’s lows, indicating a possible near-term low. However, we remain hesitant about its value action and outlook for the U. S. customer. The U. S. may also get even worse. In addition, U. S. housingUSA The market has not yet noticed large indirect effects despite developing symptoms of weakness. As a result, other tensions in the U. S. customerpossibly they would still be on the horizon and possibly would not have been addressed.
We reiterate our retention score on AMZN inventory. We urge investors to let the inventory check its existing low and short-term resistance level. an imaginable minimum.
Amazon Replacement consensus estimates in earnings and replacement in EBIT (S
Amazon EBIT Margin Consensus Estimates (S
With the hammering noticed in stores and its weaker outlook, Amazon’s consensus estimates have been revised. This makes sense, given Amazon’s footprint on the discretionary customer. A weaker customer doesn’t bode well for optimism about Amazon’s earnings and earnings growth.
In particular, Amazon’s earnings expansion is expected to emerge from its lowest point in the second half of 2022 as compositions become easier. .
Despite this, we believe that consensus estimates would possibly not have taken into account the likelihood of additional discounts on IT spending across enterprises and a weaker consumer.
We noted in our recent Lowe’s (LOW) article that the housing market is showing signs of slowing growth, which may be accentuated in the future. Thus, an expected real estate slowdown may exacerbate macroeconomic tensions for Amazon, given its large constant burden. Citi also pointed out those main dangers for Amazon, as noted (edited):
Still, as Amazon’s operations expand around the world, it could be one of the hardest hit by inflationary effects on wages and shipping costs, especially if consumers spend less.
In addition, Coinbase (COIN) also indicated that it would reduce operating expenses, reduce capital expenditures, and suspend hiring. This was a sharp shift from their earnings call, as we control you see a greater threat to your profitability forecasts. The data reported that Coinbase “cost-cutting measures come with reducing spending on cloud facilities like Amazon Web Services and Datadog (DDOG). . . “
For a while, it hit us. This way, companies can reduce their AWS spend whenever they want. Therefore, it is not sacrosanct as StreetArray analysts would tell us. So, if Coinbase plans to reduce its spending on AWS, other corporations might consider taking similar steps. that such a threat to Amazon’s maximum critical operational performance engine would possibly not have been well evaluated.
AMZN Share Price Chart (TradingView)
Our valuable action research suggests that AMZN inventory may also be at a short-term low. In addition, last week’s settlement did not exceed last week’s lows. Therefore, it is very likely that the existing help point will possibly be maintained in the short term.
However, we are developing dangers to the customer and AWS segments that might not have been considered. As a result, AMZN’s inventory may also face new headwinds if customers continue to weaken more than expected.
In addition, the damage can be more severe if more corporations reduce their spending on AWS. This may particularly unbalance consensus estimates of a recovery in the second half of 2022. investment.
As a result, we see a problematic outlook of up to 25% before its eventual minimum. Accordingly, we urge investors to continue to pay close attention to the evolution of its value.
We reiterate our Keep score on AMZN shares. We believe that critical obstacles in the customer and business segment may not have been sufficiently addressed.
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