Citi says Amazon is a top internet pick in a slower economy. Here’s why we think so, too

Published Tue, Oct 18 20221:37 PM EDTUpdated Tue, Oct 18 20221:49 PM EDT

Amazon (AMZN) is the most attractive internet pick in a slower global economy, Citi said Tuesday, further bolstering our that the company can maintain its leadership despite a weaker macro backdrop. The research note explains that Amazon can maintain strength in either a hard landing recession or a so-called soft landing, marked by a slowdown in economic growth that avoids a recession. Amazon can still gain wallet share, Citi says, even if the consumer weakens further. Wallet share refers to existing Amazon customers spending repeatedly on the company's products and services like Amazon Prime in an environment where consumer demand has fallen. This analysis is consistent with a Wall Street report last week that found Amazon is the preferred online shopping platform among shoppers even in an inflationary environment. In addition to e-commerce, Citi also highlights Amazon's profitable cloud segment, Amazon Web Services, as a core part of its overall business that can help carry it through a challenged macroeconomy. That view aligns with a separate research note from Cowen that says AWS "should enjoy years of secular tailwinds." Amazon will release its third quarter 2022 results after the closing bell on Oct. 27. These upbeat commentaries on AWS come at a time when information technology budgets for enterprise customers are constrained in a slower economy. But CNBC reporting shows that companies are still accelerating to the cloud to create efficiencies in their businesses. This will result in preserving Amazon's profit margins in a soft landing or increasing margins in a hard landing, Citi explains. While advertising, a cyclical business tied to the health of the economy, has also faced headwinds, Citi says Amazon's leadership in online ads can support profitability. Advertising, another part of Amazon's sprawling empire, is a high margin business for the company, which sells spots on its online platforms and its apps. Many tech companies including Meta Platforms (META) and Alphabet (GOOGL) have been implementing cost cutting measures to take pressure off declining revenues. Amazon has also taken these measures to protect against slower sales. While acknowledging a probable "impact on overall profitability given top-line headwinds," Citi analysts believe Amazon's cost efficiencies "should protect earnings power." Bottom line We're encouraged by several analyst notes lately that have painted an optimistic picture of Amazon's future profitability in a challenged economy. We see Amazon's ability to keep expenses under control as a prudent business measure given the tech giant's size and its many different business segments. Amazon is also working down the billions of dollars in cost and inflationary pressures that plagued operating income earlier this year. Coming off of a record Prime Day in July and another strong one in October , these successful shopping events are proof that Amazon can be innovative while staying true to its ultimate mission of providing value to its customers. We're looking forward to Amazon reporting its earnings next week, which will give us a clearer picture on how it's holding up in a slowing economy in addition to forward outlook in its business. (Jim Cramer's Charitable Trust is long AMZN, META and GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Amazon signage is displayed outside of an Amazon.com Inc. delivery hub in the late evening of Amazon Prime Day, July 12, 2022 in Culver City, California.

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