Andy Jassy ain't no Isaac Newton, but he knows how gravity works.
Responding to what he called a "provocative question," the Amazon (AMZN) chief executive explained the secret to the e-commerce giant's resilience in his annual letter to shareholders.
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Jassy listed several reasons for Amazon's 30-year success story, including "hiring builders who are motivated to improve and expand what’s possible continually; and solving real customer challenges rather than what we think may be interesting technology."
And one of the concepts sounded really basic.
"Not wasting time trying to fight gravity (spoiler alert: you always lose)," Jassy wrote. "When we discover technology that enables better customer experiences, we embrace it."
He also cited his company's ability to accept and learn from failed experiments and "actually becoming more energized to try again, with new knowledge to employ."
Amazon is scheduled to report first-quarter results on April 30. Analysts surveyed by FactSet estimate the company earned 84 cents a share on $142.7 billion in revenue.
A year earlier, Amazon earned 31 cents a share on $127.4 billion.
Several analysts adjusted their stock price targets for the Bellevue, Wash, company ahead of the earnings report.
AI helps boost revenue growth for AWS
BMO Capital analyst Brian Pitz raised the firm's price target on Amazon shares to $215 from $205 and affirmed an outperform rating.
"The most frequent AMZN questions we get are about AWS growth trajectory and the durability of the Retail-operating-income unlock," Pitz said, referring to Amazon Web Services, the company's cloud services program.
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BMO raised its 2024 estimated revenue growth for AWS to 15% from 14%, with upside potential remaining from generative-artificial-intelligence workloads and IT-spending migration.
In February, Amazon introduced Rufus, a generative AI-powered shopping assistant.
TheStreet Pro Portfolio team said on Feb. 2 that “we will be looking to gauge reception to Rufus, and should it boost average cart and transaction size, it would be reason to think Amazon can take further share from brick-and-mortar retailers.”
BMO maintained that the Rufus integration in retail is underappreciated and positions retail for double-digit growth in gross merchandise value and a meaningful unlock of free cash flow.
Wedbush analysts raised their price target on Amazon to $225 a share from $220 while reiterating their outperform rating and keeping the company on the firm’s Best Ideas list.
"We think Amazon is well positioned this year with multiple drivers of sustainable margin expansion in place," analysts said. "The company has reported operating income ahead of [Wall Street] estimates for five consecutive quarters, and we estimate" first-quarter operating income of $11.6 billion, about 5% above the analyst consensus.
Heading into the results, Wedbush analysts said they were looking for sustained advertising momentum, given the positive feedback from advertisers in the firm's first-quarter 2024 Digital Advertising Survey and from digital advertising agencies.
They said they’re also looking for accelerating growth at Amazon Web Services and incremental commentary on AI-related demand, as well as ongoing improvements in retail profit margins in both North America and international.
Amazon could get traction in grocery delivery
Citi analysts boosted their share price target for Amazon to $235 a share from $215, reiterating a stock buy rating.
The investment bank said that based on its analysis of Amazon’s Advertising, Retail, and AWS business units, it projects 2025's estimated operating income at $73 billion.
While AWS, which posted $24.2 billion in revenue for the fourth quarter, remains the largest contributor to operating income, the firm said it was looking for core retail margins to expand significantly on improving efficiencies.
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Citi said that it now saw Amazon’s retail business as the main driver of its margin-expansion thesis, noting that investments in regionalized shipping have lowered the cost to serve per unit and reduced transport distances.
The firm also said that retail conversion rates are rising as shipping speeds climb and Amazon gains a larger share of nondiscretionary purchases.
Bank of America Securities analysts, who have a buy rating and a $204 price target on the company's shares, focused on Amazon’s introduction of a $9.99 monthly grocery subscription for Prime members, lowering the free delivery threshold to over $35.
Amazon, which launched a subscription trial in three cities last year, said on April 23 that the service was available in 3,500 cities across the U.S.
Deliveries include groceries from Whole Foods and Amazon Fresh and a variety of local grocery and specialty retailers on Amazon.com.
"While grocery has been a difficult category for Amazon with multiple product and pricing offers over time, we think grocery remains a 'must have' category in urban areas given the frequency of grocery shopping and potential for customer lock-in," B of A analysts said.
Amazon continues to evolve its grocery strategy with mixed success and still needs to build out Amazon Fresh availability and grocery delivery capabilities and promote its grocery offer to consumers to gain scale, the investment firm said.
But "launching its new grocery delivery subscription nationwide suggests positive traction in early tests."
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