Amazon (AMZN) AWS Estimates Cut at Evercore ISI Amid Price Cuts

November 22, 2016 5:07 PM EST
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Evercore ISI analyst Ken Sena lowered Amazon.com (NASDAQ: AMZN) AWS revenues by 2% and 3% for Q4 and 2017 after, ahead of its re:Invent conference next week, AWS announced a second pricing cut.

Sena commented, "This morning, and ahead of its re:Invent conference next week in Las Vegas, Amazon Web Services announced a second pricing cut in as many weeks that stands to impact our 4Q / 2017 estimates. This time storage fees (S3) were lowered across the majority of its regions, on average by ~23% (or 18% on a weighted basis), after cutting pricing on several EC2 instances by 5-25% in numerous regions last week. Below we go into more detail as to the specific drivers of the estimate changes, but in summary, for 4Q, we are trimming our AWS revenue growth estimate 200bps to 54%, now at $3.71bn, while our adj. CSOI falls 2% to $2.02bn (placing us now slightly below the high end of the company’s guidance range on a GAAP basis at $1.16bn, or 5% y/y / 2.6% of revenue). Additionally, for 2017, by factoring a full year of pricing cuts, in addition to greater assumed investment within India, we are lowering AWS revenue 2% to $17.76bn (43% y/y) and CSOI 6% to $11.21bn (56% y/y, or 6.6% of revenue), though still in line to slightly above Street. Regarding the point on India, we had been projecting ~$600mm CSOI drag from the company’s investment in India, but reports yesterday cited sources placing this investment at closer to $1bn per annum."

He added, "While we suspect that these price cuts may have been factored already in Amazon’s 4Q guidance (which was issued less than a month ago), we are electing to lower our 4Q AWS revenue 1% to $3.71bn (54% y/y), a 200bp impact to growth, since the pricing changes will be in effect for just one month. This leaves Amazon total revenues effectively unchanged, given that AWS only represents 8% of revenues, albeit ~50% of CSOI. In turn, we are reducing our CSOI 2% to $2.02bn (16% y/y, 4.5% of revenue), which moves us to $1.16bn in GAAP EBIT, now slightly below the high end of the company’s guidance range. As we look to the impact of these cuts on 2017, where a full-year of cuts get factored, we are lowering our 2017 AWS revenue 2% to $17.76bn (43% y/y), or a ~350 bp impact to growth as we contemplate some elasticity, which flows through to a 4% reduction to CSOI, assuming the lost revenue represented 100% margin."

The firm maintained a Buy rating and price target of $990.00

For an analyst ratings summary and ratings history on Amazon.com click here. For more ratings news on Amazon.com click here.

Shares of Amazon.com closed at $780.00 yesterday.



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