Amazon.com, Inc. (AMZN): Steady As She Goes

Amazon stockBy Szk7788 (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

Canaccord Genuity analysts Michael Graham and Maria Ripps take a close look at Amazon.com, Inc. (NASDAQ:AMZN), noting a remarkable growth in its Prime service but seeing little reason to expect big swings to either the bull or the bear case.

Amazon Q4 results

Amazon.com, Inc. (NASDAQ:AMZN) reported solid Q4 results with revenue that matched guidance but was slightly below consensus, and operating profit that was essentially at the high end of guidance. The outlook for Q1 was below guidance (although still calls for ~18.5% growth at mid-point) and also for another quarter of essentially break-even profitability. Amazon.com, Inc. (NASDAQ:AMZN) is raising prices on Amazon Prime as membership continues to grow. This quarter offers little ammunition to the bulls or the bears.

Key Points

  • Bullish: Amazon Prime – growing quickly and likely able to absorb a significant price increase; 240 bps of y/y gross margin expansion; Media segment growth acceleration both in NA and globally.
  • Bearish: North American EGM decelerated noticeably to 25% from 33% in Q3; paid unit growth decelerated to 25% y/y growth from 29% in Q3; break-even operating margin guidance.
  • Estimate changes: Our Q1 and 2014 revenue estimates are essentially unchanged, but we are slightly trimming 2014-2016 on slower EGM growth. There is very little change to EPS, however as we also bump up our gross margin assumption. Our new 2014, 2015, 2016 non-GAAP EPS estimates go from $6.28, $10.67, and $14.56 to $5.76, $10.58, and $14.67.

Valuation

Our price target remains $365, and is based on a 25x multiple to our revised 2016 non-GAAP EPS estimate of $14.67.



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