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Last Minute Thought: Buy or Sell Amazon (AMZN) Stock Before Q4:18 Earnings?


Today will prove to be a big day for e-commerce giant Amazon’s (AMZN), as it is set to release fourth-quarter earnings — aka holiday season earnings, which will have an outsized impact on investor sentiment compared to other quarterly reports. While the past quarter was whirlwind for Amazon and most of the market, investors are betting that the company will continue showing strong growth in its retail segment. But investors are also betting Amazon will continue proving itself as more than just a retail company, as the company hopes to show continued rapid growth in advertising and Web Services (AWS).

All of these are making investors extremely excited, including Cowen analyst John Blackledge, who reiterates his Outperform rating on AMZN stock, with $2,250 price target. (To watch Blackledge’s track record, click here)

Blackledge expects “core levers, namely i) eCommerce, ii) AWS and iii) Advertising, to drive strong [revenue] growth and margin expansion near and longer term.”

On e-commerce, the analyst says, “eCommerce is being driven by deeper penetration into large retail markets like Apparel, Consumables, Food & Bev Grocery, and Home as well as B2B.” A major part of Amazon’s e-commerce iniative is Prime, which the analyst estimates has 60 million US households. Blackledge believes, “Prime will continue to be core driver of US and Int’l eCommerce growth over time.”

Blackledge expects “strong topline and margin growth” for AWS, “driven in part by deeper enterprise adoption.” AWS remains as massively important segment for Amazon; while revenue continues to grow rapidly, AWS is important for its profit-making ability. The company’s retail component still struggles on profitability in some markets, especially as it continues to test quicker delivery options. But AWS profit gives Amazon the ability to test new features and provide a heightened customer experience without dipping into the red.

Another growing business is Amazon’s advertising business. Blackledge forecasts a strong rise from $8.8 billion (FY 2018) to $13.7 billion (FY 2019) and ~$43 billion (FY 2024). As rivals Google and Facebook have shown, online advertising is not only a revenue-generating monster, but provides extremely high margins. Yet again, Amazon is able to pour non-core segment margins into create a better customer experience in its retail segment.

There’s no doubting how Wall Street feels about Amazon. TipRanks tracking of 29 analyst ratings on the company shows a consensus Strong Buy, with 28 analysts recommending Buy and only one recommending Hold. The average price target is $2,131.92, representing a 23% upside from current levels. (See AMZN’s price targets and analyst ratings on TipRanks)

 

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