Mizuho analyst James Lee noted a meaningful divergence of consumer confidence levels between the U.S. and China Internet sectors in 2024.
In the U.S., he expected moderated inflation and a tight labor market to keep consumer spending resilient, benefiting category leaders across segments such as advertising, e-commerce, and gig economy services that are likely to gain share and drive margin expansion.
Therefore, Lee recommended investors play offense in the U.S. Internet, choosing companies with upside to estimates plus long-term optionality. His top U.S. pick is Amazon.Com Inc
The analyst maintained a Buy rating on Amazon with a price target of $220.
Lee expected AWS to accelerate in FY24 and achieve the above consensus forecast as cost optimization begins unwinding and newly migrated data becomes productive.
His checks indicate enterprises are planning large-scale data migrations to the cloud due to Gen-AI, and AWS will likely benefit from this supercycle of cloud adoption.
Furthermore, Lee looked for retail margin expansion in FY24, driven by ongoing regionalization of its delivery network and new initiatives such as inbound delivery decentralization and Buy with Prime.
Lee expected a positive setup for Amazon in FY24 from the Gen-AI migration supercycle and efficiency gains in North American commerce regionalization.
As cloud cost optimization starts to unwind, Lee expected new workloads to become productive to topline growth as AWS differentiates its offerings by providing solutions to address database upgrade and model training costs.
Thus, he expected new deals to pick up this year, supporting his revenue growth estimate of 20% for FY24.
For commerce, as margins rebounded back to FY19 levels, the analyst noted further room for N.A. margin expansion from delivery network efficiency, decentralizing its inbound shipping from merchants and vendors, and improving capacity utilization. He expected retail margins to expand further by 100 bps to 3.2% by FY24.
Lee projected Q4 revenue and EPS of $163.50 billion (vs. consensus of $166.01 billion) and $0.84 (vs. consensus of $0.79).
Price Action: AMZN shares traded lower by 1.64% at $150.66 on the last check Wednesday.
