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Goldman warns Amazon could miss Wall St. guidance expectations

(FinancialPress) — Amazon (AMZN) stock holders, beware – Goldman Sachs predicts the retail giant‘s fourth-quarter forecast could be disappointing.

“Investor focus remains on operating income with the view that guidance is likely to fall below sell-side consensus of $1.5bn,” said Goldman analyst Heath Terry in a note released Wednesday.

“We expect the company to guide total revenue +26-34% yoy with $0mn to $1.0bn in GAAP operating profits, as guidance factors in the Whole Foods acquisition, [Amazon Web Services] growth accelerates modestly on an 800bps easier comp, and both revenue and expenses reflect the investments in new fulfillment centers and AWS regions,” he continued.

The company‘s set to report results for Q3, along with forecasts for the last portion of the year, on Thursday.
Amazon‘s stock has far outperformed the market it operates in through this year. So far in 2017, it has risen a smashing 30.1 percent, while the Standard and Poors 500 index has gained approximately 15 percent.
The lowered guidance will have repercussions for sure – but it‘s hard to know which way they will lean towards just yet. Amazon‘s last two income guidances were below Wall Street consensus, but its stock kept rising regardless.
Terry said that, even with the expected lower guidance, investors are “underestimating the potential for organic growth reacceleration as the ~70% growth in infrastructure spend (CapEx and Capital Leases) over the TTM begins to deliver returns and AWS comps ease.”
As for Q3, Goldman‘s expectations continue to be bullish – relying on the company‘s potential growth of its Amazon Web Service business – their cloud computing unit.

“We expect +41% yoy growth in AWS revenue in 3Q, compared to +42% yoy in 2Q17 as new capacity comes online (+16 points of presence as of 3Q vs. 9 last year) offsetting price cuts,” the firm expanded.

Goldman has placed a buy rating on Amazon stock, with a 12-month price target of $1,275. That price represents a 30% upside.

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