As Amazon is closing in on $1,000 per share, Pacific Crest believes it has already peaked, so it downgraded the company's share rating.
It's that time of the year when companies publish their earnings reports for the first quarter, and Amazon posted impressive results. The company's Q1 earnings beat analysts' expectations with a 23 percent jump in revenue and a nearly 50 percent surge in sales from its retail service, including Prime subscription fees.
Amazon Downgraded As It Nears $1,000 Per Share
The impressive Q1 results sent the company's stock price through the roof to roughly $950 per share, and Pacific Crest believes that it's "as good as it gets." Consequently, the analyst firm downgraded its rating for Amazon shares to sector weight from overweight, pointing at increasing competition and a "moderating" growth for its business.
"Amazon's 1Q17 results were impressive. However, the stock is approaching our $961 target and stepped-up competition may dampen near-term upside," Pacific Crest's Edward Yruma explains.
"1P growth rates point to moderating sales growth, and retail competition is intensifying. Nevertheless, we remain constructive long term and would look for a more-attractive entry point," adds the analyst.
The "1P" term Yruma mentions means "first party," when Amazon sells products directly to customers. Amazon also has a third-party business, allowing other companies to sell products through its website.
Moderating Growth And A Formidable Rival
The analyst further notes that moderating first-party and third-party trends could herald sluggish growth for revenue and profitability. Moreover, Yruma mentions that Walmart is shaping up as a far more "formidable" rival on the e-commerce market thanks to its aggressive efforts.
At the same time, Amazon's cloud computing business, Amazon Web Services (AWS), saw a slower growth rate in the first quarter, dropping from 47 percent in the previous quarter to 43 percent. By comparison, Microsoft reported a whopping 93 percent growth for its cloud business in the first quarter.
It's fairly rare to see Wall Street downgrade a stock such as Amazon's, yet Amazon got another downgrade just recently, when Raymond James lowered its rating. Raymond James highlighted that Amazon has to show "greater operating leverage" to exceed its previous price per share estimate. That marked the first time Amazon's stock got downgraded in more than a year, and Pacific Crest now follows with its own downgrade.
At this point, only seven out of 40 analysts have "hold" ratings on Amazon. 33 have a "buy" or "overweight" ratings, but none of them have a "sell" rating.
Nevertheless, Amazon still remains among the top performing stocks on the market, with its shares registering a substantial 22.5 percent rise this year. As Bloomberg points out, Amazon's recent stock surge now places its CEO, Jeff Bezos, just $5 billion or so short of becoming the world's richest person.
In separate news, Amazon also made headlines this week with its new Echo Look smart speaker, which now sports a camera to help fashionistas choose their outfits. The device is designed for the bedroom, and it stirred mixed reactions, as having an internet-connected gadget with a microphone and a camera by your bedside raises some serious privacy concerns.