Amazon dazzled analysts with its ability to continue to invest heavily in advertising, media and grocery while still delivering stronger-than-expected profits.
While some caution that the company’s additional investment spending in 2018 may weigh on near-term margins, most say it will continue to create long-term value for shareholders.
Analysts reaction was particularly bullish on the prospects for Amazon’s nascent but fast-growing advertising business. Shares are up 5.5 percent pre-market.
Susquehanna, Shyam Patil
Rates positive, raises PT to Street-high $1,850 from $1,300.
“We continue to remain Positive on Amazon as we see the company as a long-term secular grower with leadership positions in three large growth markets – e-commerce, cloud and advertising… and expect numbers to move higher over time.”
Catalysts include intra-quarter e-commerce data, company-specific events (such as the AWS summits), AWS product announcements, pricing decisions, and quarterly results.
Piper Jaffray, Michael Olson
Rates overweight, raises PT to $1,650 from $1,400.
Expects the core narrative on AMZN will revolve around the company’s growth (vs. margin expansion); remains highly confident Amazon continued to point to heavy investment in media, fulfillment build outs, AWS infrastructure & sales headcount, and devices.
Believes investors are broadly in favor of Amazon’s ongoing investments, despite the potential impact to margins.
KeyBanc, Edward Yruma
Rates sector weight Amazon posted a very strong holiday season and continued to take market share.
“The fact that cloud growth has accelerated at the two largest cloud platforms (AWS and Microsoft) reaffirms our bullish view on the multiyear prospects for both to benefit from a trillion-dollar transformation of the traditional enterprise IT stack.”
2018 looks to be an investment year, which may dampen near-term earnings upside.
Credit Suisse, Stephen Ju
Outperform, raises PT to $1,750 from $1,410.
Outperformance came across all reporting lines with Third Party Services particularly strong – consistent with prior results. Third Party GMV growth continues to outstrip that of First Party GMV Another highlight was the ongoing strength in its Other Revenue which includes its nascent advertising business.
“We estimate that the effective take rate is still at a low ~3% level and there is room for this to inflate over time to allow Amazon to capture a greater portion of the marginal economics.”
Raises price target based on a lower tax rate and higher growth trajectory for advertising.
Morgan Stanley, Brian Nowak
Rates overweight, raises PT to $1,500 from $1,400.
Better than expected 4Q results speak to momentum in Amazon’s high-margin businesses (AWS/ advertising/ subscription) and how they are enabling it to invest more than ever in new and existing businesses – potentially almost doubling TAM – while delivering new peak retail profitability.
This new 4Q17 peak profitability in Amazon’s oldest market, even as the company pushes into potentially lower margin Whole Foods and grocery, is bullish for the long-term.
Bloomberg Intelligence, Jitendra Waral
Amid Amazon.com’s broad-based blockbuster results, the profitability in its North America business stood out the most, indicating the company is able to balance Prime Members and Fulfillment By Amazon demand with investments in capacity.
This balance, along with burgeoning advertising businesses, lays a foundation for Amazon’s longer-term retail profitability.
Expenses are set to increase with investments in Alexa, international expansion, content and cloud services, which may make profit growth lumpy this year, yet revenue remains on a strong trajectory for 2018.