Smith Barney downgrades Amazon this morning to Sell from Hold, leaving its price target at $40. The stock is currently trading at about $44. Reasons?
Amazon will grow 5% slower than the overall ecommerce market;
competition will force Amazon to increase spending on marketing and
technology; and the stock is up 27% in two months.
This might be a well-timed downgrade, as high growth expectations
for the online shopping season now seem to be priced-in to the stocks.
Compare it to the recent note
from Goldman Sach's Anthony Noto which rode the momentum of recent
bullish ecommerce sentiment without adding meaningful incremental data.
Smith Barney conflates two opposite trends. Online marketing costs will
rise because competition for ad key words is rising and offline
retailers are becoming more serious competitors. But technology costs
continue to fall, due to the deflationary trends impacting the enterprise technology producers.