The big takeaway from Microsoft’s recent quarterly update revolved around slowing growth for its Azure cloud computing platform, as reflected in December quarter results and guidance for the current quarter.
The bottom line is that the statement is set to extend to other cloud services, particularly the segment leader. from Amazon (NASDAQ:AMZN) AWS.
“Sentiment was already bearish on AWS,” Oppenheimer analyst Jason Helfstein said, “with investors looking for a revenue slowdown over the next three quarters, largely confirmed after MSFT earnings and talks with controls. of the industry”.
In light of Microsoft’s comments, Helfstein lowered AWS FY23E expected revenue growth by 130 bps to 17% year-over-year compared to Street’s estimate of 21% and below the 29% growth anticipated in FY22E. Despite the negative sentiment, Helfstein went on to say that “AWS remains in a strong position to capitalize on secular growth.”
While Helfstein also believes that Microsoft’s guidance erred on the side of caution, an additional stance in AWS’s favor is the fact that its revenue is “leveraged” in IaaS (usage) compared to Azure’s greater exposure. to the “more volatile” PaaS (seat licenses).
Looking at the big picture around Q4, Helfstein calls for revenue to grow 5% year-over-year, 1% less than the midpoint of Street and guidance, with AWS/Advertising revenue up 22%. /20%, respectively, compared to consensus at 23%/17%.
Helfstein sees gross profit up 12% over the same period last year (consensus is 11%) and expects operating income to decline 10%, bettering Street’s forecast of an 18% drop.
“Positively,” the analyst said, “we believe e-commerce revenue has stabilized and margins should improve from organic scale and the announced headcount reductions.”
In total, Helfstein maintained an Outperform (ie Buy) rating on AMZN shares, supported by a $130 price target. The implication for investors? 27% increase from current levels. (To see Helfstein’s history, Click here)
Most on the street think the same way; based on 38 Buys vs. 4 Holds, the analyst consensus rates the stock a Strong Buy. The average target of $131.90 looks very similar to the Helfstein target and is set to generate returns of ~29% over the next year. (Watch Amazon Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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