Amazon.com, Inc. (AMZN) Downgraded By Raymond James, Stock Plummets

Amazon

Amazon.com, Inc. (NASDAQ:AMZN) reported mixed first quarter results on Thursday, with solid revenues but weak earnings. That sent the stock down by more than 9% on Friday. The online retailer said its revenues soared 22.7% to $19.74 billion, easing past the consensus estimate of $19.42 billion. This shows the company’s strength in the retail business. However, non-GAAP operating income of $502 million missed the consensus estimate of $525 million. Amazon had forecast Q1 non-GAAP income of $150-$550 million.

Amazon’s operating margins declined by 20bp

Raymond James analysts Aaron Kessler and Ben Cohen expressed concerns over slowing unit growth and media sales, lower than expected operating margins and continued heavy investments. The research firm has lowered its price target on the stock from $443 to $391. Raymond James also downgraded the stock from Strong Buy to Outperform.

Amazon.com, Inc. (NASDAQ:AMZN) said its U.S. revenues grew 28% during the quarter, while international revenues went up by 26%. However, the Seattle-based company’s operating margins skidded by 20 basis points, and missed Raymond James’ estimate by 40 basis points. Media growth in the U.S. as well as international markets was below the research firm’s estimates. Most concerning was the fact that unit growth plummeted 23% YoY while investors were expecting it to accelerate during the quarter.

Amazon’s Q2 operating income guidance below the consensus estimate

Amazon.com, Inc. (NASDAQ:AMZN) reported gross margins of 28.8%. Gross profits increased 33% to $5.686 billion, surpassing the consensus estimate of $5.42 billion. The company reported GAAP earnings of 23 cents, missing Raymond James’ estimate of 27 cents. For the current quarter, the online retail giant expects revenues of $18.1-$19.8 billion compared to a Wall Street consensus of $19.1 billion. However, its non-GAAP operating income guidance of $0-$400 million is far below the consensus estimate of $560 million.

After the report, Raymond James increased its 2014 revenue estimate by 0.8% and 2015 estimate by 0.9%. The analysts reduced their non-GAAP operating income forecast for Amazon.com, Inc. (NASDAQ:AMZN) by 20.5% for 2014 and 20.8% for 2015.

Amazon Raymond James Estimates-2

The analysts lowered the operating income estimate mainly due to weak Q2 income guidance and significantly higher operating expenses. Using a sum-of-the-parts analysis, Raymond James values Amazon at $391 per share.

Amazon SOTP-3

Amazon.com, Inc. (NASDAQ:AMZN) shares were down 8.76% to $307.60 as of 12:21 PM EDT on Friday.

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About the Author

Vikas Shukla
Vikas Shukla has a strong interest in business, finance, and technology. He writes regularly on these topics. - He can be contacted by email at vshukla@valuewalk.com or on Twitter @VikShukla10

13 Comments on "Amazon.com, Inc. (AMZN) Downgraded By Raymond James, Stock Plummets"

  1. Made plenty of money? You consider a net profit margin of less than 1%? At some point investors want to make some money. So far it’s a lot of promise, but very little net profit.

  2. Commodore | CPU?GOD | Apr 27, 2014, 8:41 pm at 8:41 pm |

    Amazon has made plenty of money. They’ve just invested a lot of it back into new enterprises. Anyone who bought and held Amazon stock in Q4 2008 has seen the nominal price of their shares increase seven-fold.

    Customer obsession sometimes means delivering solid long-term investment possibilities for the shareholders at the benefit of the customer. By designing itself as a company interested in long-term results, they are actually able to obsess over customers while dominating several industries new and old. That may not be 10% ROI, but it’s still quite the definition of success.

  3. So when and how will they make money? To make money they’re going to need to raise prices. Will they be able to maintain market share? All the markets they’re in continue to get more competitive.

    It’s easy to say ‘We’ll make money in a couple years’. Problem is, a couple years may never come.

  4. Commodore | CPU?GOD | Apr 27, 2014, 2:59 pm at 2:59 pm |

    I remember when the same exact sentiments were being propagated about China.

    Like China, Amazon is playing the long game with their financials. By laying down more expenses today, they achieve ever-broadening dominance in multiple expansive industries. This allows for both very rapid and immediate disruption in industries today, as well as strong ground-work being built for future disruptions and market share.

    The people dissing this strategy are the same ones who perpetrated the dot-com and housing bubbles, yet never saw them coming. Stop listening to the experts – their track record is nowhere near as strong as that of Jeff Bezos.

  5. how much money a company makes only matters for “value” investors waiting for dividends. it’s irrelevant for “growth” investors whose stock pays no dividend– i.e. you’re investing in the company’s potential — and a company that buys back its own stock simply means that it doesn’t know what to do with its own money to grow the business. For growth stocks, what matters is revenue… you want profit to be minimal because a growth company with a lot of “net income” means that its not reinvesting in the business.

  6. If you are referring to Apple, allow me to inform you of something: Apple made more money in ONE day than Amazon made for the entire period. How ’bout them Apple(s)..!!

  7. Below$600AShareIsPathetic!}:-( | Apr 25, 2014, 8:45 pm at 8:45 pm |

    Certain stocks are simply manipulated one way or another. The crooks have made their money running Amazon up to the heavens and now they’re pulling the plug because they’ve found some other stock they can claim has unlimited growth or something. Jeff Bezos has been building out Amazon for four strong years and the stock seemed bulletproof. Not that much has changed now except maybe how the crooks have decided to view Amazon. It probably doesn’t make much sense but I feel certain the big boys have found a bigger watering hole to drink from. It appears Amazon’s financial well is about to dry up. And this has nothing to do with the stability of the company. Just be wary if the institutional ownership starts to drop.

  8. Steven Rusinowski | Apr 25, 2014, 6:39 pm at 6:39 pm |

    I wish analysts were banned

  9. Steven Rusinowski | Apr 25, 2014, 5:28 pm at 5:28 pm |

    stupid fucking analysts….all bout the here and now….um revenue was up so fuck off

  10. You are so right..I have seen this in the past and seen profits come to them ( if you watch Wall Street carefully :) ) and their tricks ;)

  11. These analysts are shills — they upgrade a stock after it already runs up and has nowhere to go but down. They value a company buying back its own stock (and manipulates its EPS) over one that grows revenue. When an analysts upgrades a stock, it’s time to sell, and when they downgrade, its time to buy.

  12. The ROI is horrible. It’s net income is about .5%. MAYBE some day they’ll make some substantial money. Do you like to invest in companies that make very little money?

  13. Amazon had a substantial revenue increase and that’s bad news? I know it missed it’s earnings target and costs are high, but sales are up? Sales up and in this economy that’s bad news? I don’t get it.

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