Amazon.com, Inc. (NASDAQ:AMZN) reported disappointing fourth quarter results on January 30. The online retailer posted a revenue of $25.6 billion and earnings of 51 cents. That missed the consensus estimate of $26.1 billion in revenues and 74 cents in earnings. The biggest culprit was the electronics and general merchandise (EGM) sales in North America. For the first three quarters of 2013, North American EGM grew at 33%, but it increased only 25% in all-important fourth quarter to $10.6 billion.

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Amazon’s EGM growth slows

However, North America media revenue surged at a better than expected 21% rate to $3.5 billion. Meanwhile, Other revenue (which includes Amazon Web Services) in North America grew 52% during the quarter. Overall, Amazon.com, Inc. (NASDAQ:AMZN)’s North American business grew 28% to $15.3 billion, missing the consensus estimate of $15.6 billion. International Media business was up 3% to $3.7 billion. Amazon’s International EGM business rose 19% to $4.3 billion. But its growth slowed from 23% in Q3, 2013. Amazon’s first quarter guidance also missed the consensus estimates.

FBN Securities analyst Shebly Seyrafi said in a research note that the research firm has lowered ts price target from $500 to $470, mainly due to the EGM weakness. However, Seyrafi maintains an Outperform rating on the stock. FBN said that Amazon.com, Inc. (NASDAQ:AMZN)’s total EGM sales of $17.1 billion were below the consensus of $17.7 billion. But Media business was better than expected, growing 11% to $7.2 billion compared to the Wall Street consensus of $7.1 billion.

Five reasons Amazon is still a solid stock

Though weak EGM revenue and downbeat Q1 guidance disappointed investors, the research firm said Amazon.com, Inc. (NASDAQ:AMZN) remains attractive. Here are the five reasons the Seattle-based company still has immense growth potential:

  1. Amazon Web Services unit continues to grow at above 50% rate, and it’s accretive to the company’s gross margins.
  2. Amazon.com, Inc. (NASDAQ:AMZN)’s media business is picking up. Its North American media business jumped 21% to $3.5 billion.
  3. The company is planning to increase the Prime membership fees by $20-$40. FBN estimates it could add $400-$800 million to Amazon.com, Inc. (NASDAQ:AMZN)’s annual revenues.
  4. Gross margins continue to improve. During the fourth quarter, the company’s GM rose 240 basis points to 26.5%. AWS is likely to drive gross margins higher.

Amazon Gross margins

5.  Operating margins from the company’s international business improved from 1.9% in Q4, 2012 to 4.1% in Q4, 2013. 

Amazon.com, Inc. (NASDAQ:AMZN) shares dipped 0.67% to $356.29 in pre-market trading Monday.

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