Citigroup Lowers Amazon.com's 4Q Revenue Growth Rate & Price Target

Analyst Mark Mahaney reduces Amazon.com's 4Q revenue growth rate to 7% from 16%, a pretty sharp decline, based on comScore's e-commerce sales, which he believes is accurate (surprising). He then lowers his price target to $53 from $60 and reduces his 2009 revenue estimate by 5%. The stock shrugged it off and has been ripping over the past few days . Could be that Amazon is taking significant share of whatever e-commerce revenues that are being generated and that could easily lead to a beat when they report results in January.

• comScore Reported Nov 1-Dec 1 Online Retail Spend Down 2% - Also reported Cyber Monday sales jumped 15% Y/Y (which we believe is why AMZN traded up today). But our key takeaway was comScore's forecast for 0% Nov-Dec Y/Y growth. Per our 11/25 note, we view comScore's ecommerce data as accurate. So, we are now assuming flat Y/Y U.S. Q4 eRetail growth.

• We Have Lowered AMZN's Q4 Y/Y Growth From 16% to 7% - Based on our top-down ecommerce model - driven by Overall Retail Sales, Online Penetration, and Amazon's Market Share - we have lowered AMZN's Q4 North American Y/Y growth from 21% to 13% and have made similar order changes to AMZN's International growth rates.

• Reducing Our Q4 Revenue Estimate by 7% to $6.10B - Note that this is still above the $6.00B low end of AMZN guidance, but is below the Street at $6.50B. Also lowering GAAP EPS from $0.40 to $0.34 (vs. Street at $0.40). Using our top-down ecommerce model, we have also reduced '09 estimates - revenue reduced 5% to $20.26B and GAAP EPS lowered from $1.50 to $1.36.

• PT Reduced From $60 to $53 - 15X '10 Normalized FCF of $1.60B or $3.55 per share. Since '06, AMZN's P/FCF has ranged from 14X to 34X, with 22X avg.

• Reiterate Hold - We view AMZN as Core Holding - given management team, market opportunity, market share position/gains, business model & level of innovation. We view its current valuation (5% '09 normalized FCF yield) as undemanding. Macro environment is materially negative, however.