Investing

Credit Suisse cuts Amazon estimates a day before earnings report, citing one-day shipping costs

Key Points
  • Credit Suisse lowered Amazon's full-year 2019 earnings per share estimate to $38.87 from the previous estimate of $41.14.
  • The firm said it expects Amazon to apply one-day shipping on a large number of products in the remainder of the year, causing a greater-than-expected hit to margins.
  • Despite the earnings estimate cut, Credit Suisse slightly raised its price target for Amazon to $2250 from $2200.
An Amazon Prime package
Andrew Harrer | Bloomberg | Contributor

A day before Amazon's second-quarter earnings release, Credit Suisse lowered its earnings estimate because of the e-commerce giant's roll-out of one-day prime.

The firm lowered Amazon's full-year 2019 earnings per share estimate to $38.87 from the previous estimate of $41.14, citing greater shipping costs as Amazon expands its one-day prime offering.

"We lower our operating income forecast for 2H19/2020 as we expect Amazon to underwrite faster Prime shipping across a greater selection of products, with a rationale consistent with past practice – to place greater distance between its consumer value proposition vs its competitors," said Credit Suisse research analyst Stephen Ju in a note to clients Wednesday.

Last month, Amazon rolled out free one-day shipping for Prime members on over 10 million products. Amazon executives said on its last earnings call that it will spend $800 million in the second quarter of 2019 to shorten the standard shipping program for Prime customers from two days to one. In order to increase global market value, Credit Suisse expects Amazon to apply one-day shipping on a large number of products in the remainder of the year, causing a greater-than-expected hit to margins.

Amazon shares fell more than 1% on Wednesday morning but closed the day up 0.32%. 

Despite the earnings estimate cut, Credit Suisse slightly raised its price target for Amazon to $2250 from $2200 and maintained its outperform rating on the stock.

"Despite the short term impact to operating profit, we believe faster free shipping should drive greater GMV growth for the out years and hence steeper free cash flow growth as unit economics recover," said Ju.

Amazon is set to report second-quarter earnings after the bell on Thursday.

— with reporting from CNBC's Michael Bloom.