The Ratings Game: This is why Amazon’s revenue-growth slowdown may actually be a good thing

The Ratings Game: This is why Amazon’s revenue-growth slowdown may actually be a good thing

Amazon.com Inc. shares may be down more than 8% in Friday morning trading after the retail-and-tech giant reported a revenue miss and gave below-consensus fourth-quarter guidance, but there’s a bright side to all this negative news, according to GlobalData Retail: you can’t call Amazon a monopoly.


Amazon AMZN, -7.82%  reported record profit, and sales of $56.6 billion were up from $43.7 billion last year. The setup for the holiday shopping season is solid, with low unemployment and high consumer confidence. Amazon forecasts sales of $66.5 billion to $72.5 billion, up 10% to 20%.


Even with these seemingly stellar numbers, GlobalData Managing Director Neil Saunders says sales growth has “moderated to 29.3%.” The biggest reason for the revenue-growth slowdown is heightened competition online, where other big retail names like Macy’s Inc. M, -2.18% Target Corp. TGT, -2.25% and Walmart Inc. WMT, -0.24% have made investments in order to compete.


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“[O]thers are now getting better at nibbling away at [Amazon’s] dominance,” Saunders wrote, emphasizing that Amazon is still a “behemoth” that’s not “under any serious threat.”


“In a perverse way, this is good news for Amazon as it underlines the fallacy that the company is a monopoly or has some kind of special powers to force consumers to shop with it,” GlobalData said. “It also likely means that the company will focus more heavily on driving growth in areas where it is under potential, including the B2B market, where it is adding a raft of Prime services, and consumer categories like home furnishings where it plays second fiddle to Wayfair.”


There has been persistent chatter about the possibility that politicians and regulators would take steps to look into whether Amazon has gotten too big. With the company and Chief Executive Jeff Bezos in President Trump’s crosshairs, that seemed a little more likely.


Amazon’s sales numbers may put those antitrust questions to rest, at least for now.


See: Record profit can’t save Amazon from stock downturn


Retailers have streamlined their operations by shutting underperforming stores and are now providing a more seamless shopping experience, Moody’s wrote in a Thursday note. That, coupled with better inventory management, is helping other players in the sector.


“All of this has spurred sales and operating profit growth, which has surpassed our initial expectations,” the note said.


Moody’s turned positive on the retail sector for the first time since July 2015.


Moody’s, along with other analysts, remain positive about Amazon as well.


“Amazon continued to demonstrate that its various investments are resonating with its very broad and fast-growing customer base, with impressive results across the board, especially on the retail and services side, with operating margin reversing to a positive 3.3% from Q3 2017’s negative number,” wrote Charlie O’Shea, Moody’s lead retail analyst.


“Amazon’s outlook for Q4 indicates that the company expects these favorable operating and expense trends to continue.”


SunTrust Robinson Humphrey analysts reiterated their buy Amazon stock rating and raised their price target to $2,250 from $2,150.


“We believe the 4Q18 revenue guide is on the conservative side, as the company is greatly positioned to benefit from a robust holiday season (with a record of more than 100 million Prime manageable items available for free two-day shipping for more than 100 million members) and 4Q tailwinds in India,” analysts wrote.


Also: Target takes aim at Amazon and Walmart with free two-day shipping


Analysts at Benchmark, a research and brokerage firm, are also bullish, particularly on Amazon’s global business.


“[W]e still see plenty of room for top-line growth despite revenue likely to eclipse $230 billion in 2018 as international Prime selection still remains a large laggard to the domestic market even in more mature geographies, while the blueprint for scaling up growth in developing markets has evolved to become more efficient from both a revenue and cost perspective,” Benchmark wrote.


Analysts there rate Amazon shares buy with a $2,100 price target.


And Amazon is still a top pick on J.P. Morgan’s Analyst Focus List. They see any pullback as a chance to buy the stock.


“While the optics of a 10% to 20% guide may have come as a surprise to some, Amazon fully laps its Whole Foods acquisition in 4Q and typically sees retail revenue growth decelerate in 4Q as faster growing categories (i.e. apparel, health and personal care, beauty) become a smaller part of the mix relative to slower growing categories (i.e. toys, electronics),” J.P. Morgan wrote.


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Analysts there also say the company faces a $300 million headwind from a fourth-quarter accounting change.


J.P. Morgan rates Amazon overweight with a $2,100 price target, down from $2,200.


Amazon shares have rallied 40.5% for the year to date, outpacing the Amplify Online Retail ETF IBUY, -3.25% which has gained 4%, and the S&P 500 index SPX, -1.73% down 0.5%.