As Amazon Hits High, One Analyst Reconsiders – Barron’s
Amazon is spending lots of money on projects that might never pan out, from drones to grocery delivery to international expansion. Investors, for the most part, have given the company a pass on the big expenditures, putting their faith in the company’s long-term vision.
Earlier this week, one analyst said Amazon shares could soon reach $1,250.
But as the stock hovers near its all-time high, not everyone is cheering on Amazon’s rally. Raymond James analyst Aaron Kessler said he’d like to see better results from these investments before recommending that investors buy shares. “Specifically, we would like to see improved margins/less losses for International, shipping costs, [and] Prime Video,” Kessler wrote on Tuesday. (Margin refers to the percentage of sales that are kept as profit.)
Prime Video may help Amazon attract more Prime members, but Kessler wants Amazon to prove that its emphasis on original content and streaming deals (like a recently announced partnership with the NFL) can yield better returns for all of the money being spent on this area.
Meanwhile, the company’s big money maker, its Amazon Web Services cloud-computing business, faces increased competition. AWS, as it’s known, slashed prices numerous times at the end of last year, Kessler notes. He thinks this more heated landscape could pressure profits for the segment going forward.
On Tuesday, Kessler downgraded Amazon shares to Market Perform, indicating he thinks they’ll trade in line with the overall market.
Big Picture: Amazon shares are hot these days, but there are still risks that could derail the rally.