Why is Wall Street still bullish on Amazon’s share price?

Amazon’s share price [AMZN] is back on firmer footing after a shaky third quarter earnings report. The quarterly numbers missed expectations and suggested the e-commerce giant is under pressure as reopened bricks and mortar stores up the competition after being battered by last year’s pandemic-induced lock downs.

Even among the online retailers, Amazon’s share price has been performing at a fairly pedestrian pace. The stock is up 8.2% this year (as of 12 November), well behind eBay [EBAY] and Shopify’s [SHOP] near 47% gains.

Still, it’s not all bad news. Helping put the stock back on a firmer footing is news that PayPal [PYPL] will allow Venmo users to use the platform to buy Amazon products from next year. That sent Amazon’s share price up 2.5% on Tuesday 9 November.

Analysts are also backing Amazon, with many suggesting that it is well placed for longer-term growth with the share price potentially breaking out in 2022.

Amazon’s share price slips after missed expectations

There’s no getting away from the fact that Amazon missed Wall Street expectations for both the top and bottom line as growth. Earnings came in at $6.12 versus an expected $8.92 a share, while revenue of $110.81bn missed the forecast $111.6bn.

Increased competition from physical shops now reopen following the pandemic has hurt sales. Worryingly, Amazon’s growth is stalling as it is coming into the lucrative holiday season, which encompasses both Black Friday and Christmas. Compounding things are supply chain issues, labour shortages and increased shipping costs. 

Perhaps more worrying was slashed Q4 guidance. Amazon now expects sales of between $130 billion and $140 billion in the fourth quarter - a sluggish growth rate of between 4% and 12%. Operating profits in the fourth quarter are expected to be between $0 and $3bn - a steep drop from the $6.9bn seen in the same period last year.

Following the results, Amazon’s share price dropped 3.6% in the morning session on 29 October. 

What does the future hold for the Amazon share price?

Despite earnings badly missing estimates, Amazon’s share price has recouped its losses and is now trading around its early September levels.

The e-commerce retailer is also making strategic decisions that could help it compete on the same turf as the likes of WalMart by opening its own physical retail locations.

"The key question from here is when/if does the current investment cycle drive evidence of share gains and margin leverage," RBC Capital Markets analyst Brad Erickson said in a note. "Only time will tell, but in our view AMZN stock is making critical investments as consumers increasingly demand faster shipping which should at least maintain share gains while, importantly, growing gross profit dollars."

This will, of course, take investment - and such cost is likely to crop up on future earnings reports, but it suggests that investors might want to consider a longer-term outlook on Amazon’s share price, especially as it's arguably trading at a discount.

“...in our view AMZN stock is making critical investments as consumers increasingly demand faster shipping which should at least maintain share gains while, importantly, growing gross profit dollars” - RBC Capital Markets analyst Brad Erickson

Wall Street still bullish on Amazon’s share price

Even analysts who trimmed their price targets following the results still see plenty of upside on Amazon’s share price.

Goldman Sachs’ Eric Sheridan lowered his target to $4,100 from $4,250, which would see a 16% upside on Friday’s closing price of $3525. Sheridan said that Q4 revenue guidance was actually "much better than feared," and that the retailer was both in a good place to handle any potential supply chain issues and was making smart strategic decisions.

Morgan Stanley analyst Brian Nowak lowered his price target from $4,100 to $4,000 off the back of the Q4 guidance, but still believes in the longer-term potential of the company - a familiar theme from the analysts whose lowered targets.

Then there were analysts who actually upped their price targets. Credit Suisse and JP Morgan raised theirs to $4,350 - a 23% upside. Credit Suisse’s Stephen Ju pointed to Amazon’s inventory which should help the retailer outperform the competition during the holidays.

Stifel is the most bullish on the street with a $4,400 price target, which suggests a near 25% upside. Stifel analyst Scott Devvit says that Amazon’s share price will be a ‘big outperformer in 2022’ and described the recent dip as an ‘attractive buying opportunity’.

Among the analysts tracking Amazon’s share price on Yahoo Finance, the stock has a $4,066.41 price target - hitting this would see a 15.3% upside on the current price.