PhillipCapital analyst Timothy Ang has maintained his “buy” recommendation on Amazon after its earnings for the 4QFY2021 ended December.
On Feb 3, Amazon reported revenue of US$137.41 billion ($184.68 billion), up 9.4% y-o-y. 4QFY2021 PATMI or earnings fell 30.8% y-o-y to US$5.00 billion, with its operating income coming in at the higher end of its guidance.
In his 9 Feb report, Ang says Amazon’s results for the FY2021 stood in line with his revenue and PATMI estimates at 99% and 102% of his FY2021 forecasts respectively, excluding a pre-tax valuation gain of US$11.8 billion from the initial public offering (IPO) of Rivian Automotive.
During the quarter, Amazon saw a moderation in the growth of its e-commerce segment, as it is normalising after a pandemic-induced surge.
“Amazon’s fulfilment network is no longer running at 100% capacity, signalling moderating demand. This has led to US$1 billion negative impact on operating income from lower fixed cost leverage. However, capital expenditures (CAPEX) in fulfilment centres, which represents 30% of CAPEX, is expected to moderate moving forward,” says Ang.
He adds, “Guidance for 1QFY2022 net sales of US$112 billion to US$117 billion was 3-6% weaker than consensus of US$120 billion”.
“In addition, CAPEX is expected to remain elevated in FY2022 as Amazon continues to ramp up AWS infrastructure and transportation capacity. However, despite the weaker sales guidance, FY2022 will benefit from easier comparables in FY2021 vs the previous comparables in FY2020. The swing factor in 1QFY2022 guidance is margins, likely due to the potential moderation of elevated fulfilment and labour costs as supply constraints ease,” he continues.
On this, Ang has cut his revenue estimates for the FY2022 by 3%. He has also reduced his operating margin estimates from 8% to 6% due to still elevated wage and fulfilment costs, which lowers his PATMI estimates for the FY2022 by 31%.
He has also lowered his target price estimate to US$4,079 from US$4,157 previously. His valuations are based on a discounted cash flow (DCF) formula with a weighted average cost of capital (WACC) of 6.2% and terminal growth of 5.0%.
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As at 9.41am (US time), shares in Amazon are trading US$25.29 higher or 0.8% up at US$3,187.30, or an FY2022 P/B of 9.5 times.
Photo: Bloomberg
