Mizuho analysts believe Street’s consensus for the growth of Amazon’s cloud business is too optimistic as far as the second quarter is concerned.
The market expects Amazon Web Services (AWS) to grow 13% year-over-year while the analysts believe this business unit is likely to grow 7.5%. Moreover, they say that the 2H23 rebound could be shallower than Street expectations.
“We also view consensus AWS OPI for FY23 roughly 7% too high,” they said in a client note.
As a result, the analysts cut FY23E AWS revenue growth from 16% to 10% YoY, below Street’s 13%. On the other hand, they raised retail operating margins by 70 basis points to -0.6% “to reflect improving margins from Prime Video and the most recent round of headcount reductions.”
“Keep in mind we believe macro issues for AWS are short-term, not structural, so we maintain our Buy rating and $135PT, or 14x our FY24E EBITDA. In the meantime, the stock could be volatile near-term from potential downward revisions in AWS,” the analysts added.
Amazon (NASDAQ:) shares are up 23% year-to-date (YTD).