Wall Street Analysts Are
Going Gaga Over Amazon's Blockbuster Earnings Report
Effusive commentary all around.
October 23, 2015 — 7:16 AM EDT
Amazon's Secret Sauce:
AWS Pulls in $2.09B in 3rd Quarter
Shares of Amazon.com Inc. spiked in the after-hours session on Thursday, with the
firm reporting a surprising third-quarter profit on better than anticipated
sales.
The more than
double-digit gains propelled Jeff Bezos, chief executive officer of the
e-commerce and cloud computing company, to third on the list of America's richest people.
The strength of Amazon's
quarterly results can be judged not only by the jump in Bezos' net worth, but
also by the effusive praise these numbers inspired.
Commentary from analysts
show that they believe the company's performance and growth prospects are
robust, as well as increased faith that Bezos' intense expansion plans, which
crimped on profitability in the past, will continue to bear fruit going
forward:
Morgan Stanley's
Brian Nowak (Overweight, Price target to $750 from $740)
Amazon's 3Q results reinforce our view
that the company's business is inflecting around the globe as YoY ex FX
revenue growth in all 4 of its main retail segments accelerated...for the
3rd straight quarter. Retail gross profit dollars per customer – which we
view as a proxy for retail same store sales – accelerated to 27%
growth...the fastest growth in company history and 2.5X higher than the
long-term ~11% average rate… In effect, we see AMZN's accelerating SSS
growth leading to a period of sustained, rising profitability.
Stifel's
Scott Devitt (Buy, Price target to $750 from $700)
Winning in All Facets of
the Game. We believe the company has emerged from its
recent investment cycle well-positioned to extend its competitive
advantages through the Prime platform, enhanced logistics and AWS
services. The rapid adoption in Prime membership has been a boost to NA
retail and is in the early stages of driving international retail… Overall
we believe this quarter's results indicate that Amazon has reached a
critical level of scale which allows it to build a robust global ecosystem
while maintaining profitable top-line growth.
Goldman Sachs' Heath
Terry (Buy, Price target to $760 from $680)
We believe this quarter is further evidence
that Amazon’s investment in infrastructure, logistics, and web services is
accelerating market share gains, cash flow growth, and continued high returns
on invested capital.
Nomura's
Robert Drbul (Buy, Price target $700)
We do not expect investment spending to abate,
especially in Prime and AWS, but believe the company has proven that profits
can be realized regardless. We expect AMZN to simultaneously focus on cost
reduction and efficiency, and believe that continued strong revenue growth
(~20% in FY15-17) will support the profit equation.
Barclays' Paul
Vogel (Overweight, Price target $700)
Although margin outperformance was the center
of attention, Amazon’s core retail business out performed expectations as
well, led by continuing acceleration of International revenue and aided by
Prime. Both North American and International EGM growth, on an
fxneutral basis, have accelerated in each quarter this year, with EGM now
comprising 79% of North American Revenues and 71% of International
Revenues.
Jefferies' Brian
Pitz (Buy, Price target $730)
After speculation for about 1.5 years that
Amazon might in-source last-mile fulfillment, it seems the company is
getting serious about this. According to media reports, Amazon has hired
an executive search firm to build a management team to lead the effort. We
believe this is Amazon's next major step in its evolving fulfillment
strategy which is focused on reducing friction for shoppers by offering
better selection, product availability, & high service levels…As the
company enables a mix of all these expedited delivery services into the
top 50 US markets, traditional retailers with slower and more expensive
shipping options should be feeling increasing pressure and start
losing market share.
Raymond James' Aaron
Kessler (Strong buy, Price target to $745 from $640)
Amazon reported strong 3Q revenues driven by
accelerating retail sales (in part driven by Prime Day) and continued AWS
outperformance (78% y/y). Additionally, Amazon continued to see significantly
improved margins for North America retail and AWS (non-GAAP OM increased
~400 bp y/y ). Given the strength, we are increasing our
2015/2016 non-GAAP operating income by ~11/6% and believe estimates could
prove conservative.
Macquarie's Ben
Schachter (Outperform, Price target to $740 from from $660)
The bottom line is that AMZN continues to
deliver against the long-term bull thesis: increasing share, rising
margins. Finally, something notable this earnings season thus far is that
EBAY, AMZN, and GOOG have all highlighted growth in India (AMZN has
tripled fulfilment capacity y/y). While not quantified, these companies are
all seeing an uptick meaningful enough to highlight.
Deutsche Bank's Ross
Sandler (Buy, Price target to $725 from $665)
Retail is charging into 4Q with 75m+ prime
members globally (DB est). We think shares can drift higher in the near-term,
but admittedly are due a breather as margins level out a bit in 2016, which we
don’t think will come as a surprise…Try as we might, we struggle finding
anything to nitpick. The obvious point would be that 4Q guidance was below
Consensus, but this was largely expected by the buy side.
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