Amazon has upside from here, says Roth Capital

Shares of Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN) are having a hard time gaining any ground in recent months and the stock remains at pre-pandemic levels, now having lost all those early-COVID gains. 

But investors can expect better days ahead, according to Roth Capital Partners analyst Rohit Kulkarni, who forecasts sizeable earnings growth over the next two years for the e-commerce and cloud computing giant. Kulkarni delivered an update to clients on Tuesday where he reiterated a “Buy” rating on AMZN and 12-month target price of $125, implying a return at the time of publication of 28.6 per cent.

Earlier this month, Amazon filed its annual 10-K report to the Securities and Exchange Commission, documenting its financials over the past year, with a number of incremental disclosures worth noticing, Kulkarni says, as the report details items such as international versus domestic revenue, sales and marketing and spend on video and music content.

On the geographical front, Kulkarni noted that Amazon reported deceleration of revenue growth in 2022 across all areas. The US remains Amazon’s largest market, accounting for about 69 per cent of its 2022 revenues and driven by its AWS cloud business. Its “Rest of World (RoW)” business, which includes India, is its second largest market, accounting for 14 per cent of revenue but showing a drop in growth of about ten per cent year-over-year in 2022. Germany is the third-largest at seven per cent and also lost about ten per cent in terms of revenue growth last year. The UK at six per cent of total revenue saw a six per cent drop, while Japan reported six per cent revenue growth last year compared to 13 per cent in 2021.

“During 2022, Amazon’s overall reported revenue growth rate was 9.4 per cent y/y, a multi-year low revenue growth versus 21.7 per cent y/y in 2021 and 27.3 per cent y/y in 2020 versus 20.5 per cent y/y in 2019,” Kulkarni said.

On Sales & Marketing, the analyst noted that AMZN continues to shift its spending from advertising to sales, with ad spending representing a smaller piece of overall marketing spend. Over 75 per cent of S&M dollars went to advertising in 2014 compared to about 50 per cent in 2022.

Looking ahead, Kulkarni is forecasting Amazon to generate 2023 revenue and EPS of $546.443 billion and $1.74 per share, respectively, and 2024 revenue and EPS of $598.873 billion and $2.57 per share, respectively.