Leigh Drogen

About the Author Leigh Drogen

Leigh Drogen is the Founder and CEO of Estimize. Estimize is an open financial estimates platform which facilitates the aggregation of fundamental estimates from independent, buy-side, and sell-side analysts, along with those of industry experts, private investors and students. By sourcing estimates from a diverse community of individuals, Estimize provides both a more accurate and more representative view of expectations compared to sell side only data. Leigh started his career as a quant trader at Geller Capital, a White Plains, NY based fund where he ran strategies that looked at earnings acceleration and analyst estimate revision models, as well as price momentum and several sentiment indicators. Leigh later went on to be the founder of Surfview Capital, a New York based asset management firm that used many of the same strategies as Geller Capital, with a focus on higher beta names on an intermediate term time frame. His educational background includes focus in economics and international relations, specifically war theory. He is a graduate with honors from Hunter College in New York City. You can contact Leigh by emailing him at Leigh@estimize.com

Earnings Beat: Amazon.com, Inc. (AMZN), GoPro Inc (GPRO), Chipotle Mexican Grill, Inc. (CMG)

Amazon.com, Inc.

Amazon.com, Inc. (NASDAQ:AMZN) ripped through the holiday season with initial reports stating it shipped 1 billion items worldwide through Prime and Fulfillment by Amazon. Amazon’s line of Alexa powered Echo devices stirred up the most growth in this period as sales of AI home assistants grew 9 fold from a year earlier. Even though retail is a core part of Amazon’s business, investors are more concerned with margin growth on Amazon Web Services. This part of the business generates much higher margins than retail and essentially led to profitability 4 quarters ago. In order for investors to come out of tonight’s report with a smile, web services must meet or exceed analyst’s expectation.

So far analysts at Estimize believe Amazon can deliver another strong report. The consensus data expects earnings of $1.48 per share, about 59% higher than the same period last year. That estimate declined by 30% in the past 3 months after a weak third quarter report. Revenue for the period is forecasted to rise 25% to an all time high of $44.95 billion. For Amazon, three factors play a major part in whether today’s print satisfies investors; Amazon Web Services, retail and other investments.

Amazon Web Services produces the highest margins across all of Amazon’s business. The segment remained solid in the third quarter despite a lackluster bottom line number. Business from AWS grew by about 55% to $3.23 billion and also generated record profits, with quarterly operating income income of $861 million. Amazon currently supports some of the biggest platforms like Netflix and Verizon and continues to add more features to further entrench itself as the de facto cloud computing service. That said, Microsoft’s recent rise in the space with Azure places some pressure on Amazon to expand and innovate so as to not lose any market share.

Retail sales, on the other hand, generate the lowest margins but a majority of Amazon’s total revenue. In the third quarter revenue from North America accounted for 58% of total sales, representing a 6.8% increase sequentially and about 26% on a year over year basis. The international segment, which accounts for 32% of AWS revenue, grew slightly faster at 7.8% on a quarterly basis. Retail sales also include Prime memberships, content on Instant Video, and Kindle related services, all of which continue to perform well. The biggest concern for Amazon will be whether it can replicate its domestic success overseas. Increasing competition, currency headwinds, and potential Trump fallout remain other near term threats to the retail segment.

Amazon, like Google, also funds moonshot shot investments which investors view as a big pile of burning money, until they aren’t. Some new projects in the pipeline for Amazon include drone delivery, Amazon Go stores, more expansive original content, grocery delivery and much more. Knowing Amazon, many of these early stage projects will become the cornerstone of future growth but in the interim they continue to drag down margins.

GoPro Inc

GoPro Inc (NASDAQ:GPRO) maintains a steady slide heading into this afternoon’s report, with investors hopeful that the action camera maker can turn things around. After the third quarter, management guided a weak sales from its two newest products; Hero 5 and Karma Drone. The company back a few months later and claimed sales wouldn’t be as bad, but the damage was done. Shares slipped nearly 17% throughout the fiasco and promises to disappoint again today. Given GoPro’s narrowed focus on products that simply don’t sell, investors can come to expect a repeat performance of the third quarter.

Chipotle Mexican Grill, Inc.

The effects of the first health scare in 2015 still haunts Chipotle Mexican Grill, Inc. (NYSE:CMG) and its investors a year and half later. Shares tanked immediately after the first slew of customers reportedly became ill and continued to fall with each subsequent outbreak. Over this journey, financial performance fell to two year lows as growth slipped into negative territory. Chipotle faces a steep uphill battle to recover its losses and regain the trust of its once loyal customers. Some analysts believe the burrito chain can dig itself out of the 15 month drought, starting with a strong fourth quarter report this afternoon.

For the fourth quarter, Analysts at Estimize call for earnings of 58 cents per share, 56% lower than the same period last year. That estimate dropped by nearly 70% in the past 3 months with the confluence of several factors. Revenue for the period is expected to increase by 5% to $1.03 billion, marking positive growth for the first time in over four quarters. Shares of the burrito chain declined 8% in the past year but that almost seems like a positive given comparisons fell by an average of 23% in the trailing four quarters

In a report earlier this month, Chipotle stated that same store sales progressively improved throughout the fourth quarter. In October comps fell by 20%, dropped again in November but then jumped by 15% in December. December faced the easiest comparisons as it was the first full month following the initial health outbreak.

To offset some of these losses Chipotle continues to use promotional initiatives and new menu offerings with the intent of driving traffic. Some marketing programs used in 2016 include Chiptopia, the introduction of chorizo and an ongoing student discount. Increasing brand marketing and driving technological investments should also help aid in bringing back customers.

But as is always the case, the cost of running new marketing initiatives puts pressure on margin expansion. Meanwhile, the broad pullback occurring in the fast casual space, high wages and food costs should only exacerbate Chipotle’s losses.