Top Analyst Provides First Glance on Amazon (AMZN) Q4:18 Earnings

Retailing giant Amazon (AMZN) reported a stellar holiday quarter which underscored the company’s dominance in the digital retail and cloud markets, both of which have secular growth prospects. The company’s profitability was also quite impressive during the quarter. However, investors reacted to the earnings report with some skittishness, as first-quarter revenue guidance failed to live up to Wall Street’s high expectations.

Turning to the specifics, the company reported fourth-quarter earnings per share (EPS) of $6.04, beating Wall Street expectations of $5.68. Amazon’s revenue of almost $72.4 billion in the period also exceeded Street forecasts of $71.7 billion. For the current quarter ending in April, Amazon said it expects revenue in the range of $56 billion to $60 billion, compared Street estimates of close to $61.2 billion.

Baird’s top analyst Colin Sebastian commented, “At first glance, no change to our positive long-term thesis. Positives include accelerating Int’l segment, solid AWS growth, fulfillment expense leverage. Concerns include slowing unit and NA Online growth, slowing subscription/advertising segment growth, gross margin miss, and guidance (likely reflects India issues, lower 3P fees).”

The analyst continued, “Q4 results beat consensus expectations largely due to International upside and strong AWS, offsetting deceleration in NA Online, paid unit growth, and subscription revenues (partly due to straight-line accounting changes.) Gross margin was below our expectation (1P mix, hardware related), while North America margins expanded ~60 bps Y/Y reflecting significant fulfillment expense leverage. International segment losses also moderated despite the investments in India (operating margin of -5.2% vs. -5.1% in 4Q18). As highlighted in our 4Q preview investor focus on the call will likely revolve around unit growth and the mix shift to higher-margin (but lower revenue dollar) 3P revenues, including potential impact of recent 3P price changes and higher shipping costs on overall retail segment profitability.”

All in all, Sebastian reiterates an Outperform rating on AMZN stock, with a price target of $2,100, which represents a potential upside of 22% from where the stock is currently trading.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Colin Sebastian has a yearly average return of 21.4% and a 67.5% success rate. Sebastian has a 44.4% average return when recommending AMZN, and is ranked #29 out of 5140 analysts.

TipRanks’ data shows an overwhelmingly bullish camp backing this retail titan. The ‘Strong Buy’ stock has amassed 28 ‘buy’ ratings in the last three months, with just one analyst playing it safe with a hold rating. The 12-month average price target stands tall at $2,131.92, marking nearly 24% in return potential for the stock. (See AMZN’s price targets and analyst ratings on TipRanks)

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