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Amazon's big profit miss spooks investors, but analysts stay bullish

Shares of the e-commerce juggernaut, which have risen 40% this year, were down 4.3%


Amazon Inc, Amazon
Amazon boxes are seen stacked for delivery in the Manhattan borough of New York City, US. File Photo: Reuters

A steeper-than-expected drop in quarterly profit rattled some com investors, but analysts remained largely bullish about the company's aggressive spending plans.

Shares of the juggernaut, which have risen 40 per cent this year, were down 4.3 per cent at $1,001 in early trading on Friday, wiping out $21 billion from its market value.

The stock touched a record high on Thursday, helping CEO briefly unseat Microsoft Inc co-founder Bill Gates as the world's richest person.

"The overall story coming out of Amazon's second quarter print feels a lot like it did three months ago - accelerating growth, stepped-up investments, lower near-term profitability," JP Morgan analyst Doug Anmuth said.

"But will anyone care about profit when is taking bigger chunks of market share?"

The world's largest online retailer reported a better-than-expected rise in revenue, but operating profit came in well short of analysts' estimate as the company continued to pump in money to expand in markets such as India.

The company also guided to a possible operating loss for the current quarter.

Amazon, which started as an online bookseller, has forayed into areas that historically had barriers to The company's recent $13.7 billion acquisition of Whole Foods Markets Inc is testimony to Bezos' far-reaching ambition.

At least four brokerages, including J.P. Morgan, raised their price targets on the stock.

Morgan Stanley, however, trimmed its price target by $50 to $1,150 based on valuation. The median price target is $1,150, indicating a 9.9 percent upside to Thursday's close.

currently trades 115.8 times its 12-months forward earnings. This compares with Microsoft's 22.43 and Alphabet Inc's 26.45. The two compete with Amazon's market leading cloud computing business, Web Services (AWS).

PE is widely used on to gauge the relative value of stocks although it is not the only such metric.

AWS continued to be the company's cash cow, bringing in $4.1 billion in sales, a 42 percent jump.

Chief Financial Officer Brian Olsavsky said on a post-earnings call that the AWS unit would expand in France, Sweden and China in the near future.

"We believe the company's ongoing heavy investments in fulfillment capacity, video content, and AWS are to match with its substantial growth rates, and should not be viewed negatively," Needham & Co analyst Kerry Rice said, who views the pullback in the stock as a "buying opportunity."

First Published: Fri, July 28 2017. 20:21 IST