Analysts are turning their attention to another so-called FAANG stock as Amazon reports after the bell Thursday. The company reported a record-setting holiday season and analysts will be also be watching for updates on revenue growth deceleration, cloud services, health-care business, Whole Foods integration and international growth.
Amazon shares are up 3 percent heading into the results and a whopping 17 percent over the last year, outperforming the S&P 500, which is down 4.6 percent.
In his analyst preview note, Goldman Sachs’ Heath Terry said, “Investors’ primary focus into results is revenue growth … the vast majority of investors we speak with remain focused on the risk of further deceleration in Amazon’s growth rate.” Terry is also looking for an update on how the proposed changes in India protecting local competitors, will impact Amazon and its Q1 guidance.
Analyst Doug Anmuth at J.P. Morgan has Amazon on his focus list and it remains a top pick at the firm. He said, “We believe Amazon will guide the high end to revenue reacceleration in 1Q, though we recognize there are multiple timing/comp dynamics and accounting changes that combined could be a modest headwind to AMZN’s typical reacceleration.”
SunTrust’s Youssef Squali warned that, “History shows that Amazon has had limited success in exceeding Street expectations for revs in 4Q, likely due to the lack of visibility at the time guidance is given, and difficulties in forecasting a high amount of sales volume in such a small window, in our view.”
Stephen Ju of Credit Suisse said in a note to clients, that “we believe Amazon will display throughout 2019 better-than-expected unit and revenue growth offset by a slower pace of profit dollar growth given the incremental expense items.”
Perhaps no other analyst summed it up as well as RBC’s Mark Mahaney who in his earnings preview note reiterating his outperform rating said, “Amazon remains an internet staple…”
Here’s what the analysts are watching for:
“As we look toward 2019 and the 4Q18 earnings result, we expect the following items to be of primary focus: 1) potential unit volume and revenue growth stabilization in 4Q18 due to greater free shipping subsidies through the Holidays, 2) as well as for 2019 as Amazon exits a period of tougher comparisons due to a decrease in the free shipping minimum, 3) lower seller referral and higher FBA fees, 4) higher USPS fees, 5) minimum wage hikes, 5) more moderate 1P/3P mix shift… Adding up these factors, we believe Amazon will display throughout 2019 better-than-expected unit and revenue growth offset by a slower pace of profit dollar growth given the incremental expense items… Although this is different versus the outsized operating profit beats the company has displayed 1Q18-3Q18, we expect investors to receive well what should be a more moderate deceleration path… We maintain our Outperform rating on AMZN shares, which is predicated on the following longer-term factors 1) e-commerce segment operating margin expansion as Amazon grows into its larger infrastructure, 2) optionality for faster-than-expected free cash flow growth vis-à-vis its advertising segment, and 3) upward bias to AWS revenue forecasts and likely more moderate deceleration path as suggested by ongoing capital intensity in the business..”
“Based on intra-quarter data points, our channel checks, and our model sensitivity work, we think Street estimates are reasonable for the December quarter, with greater potential for modest upside than downside… In terms of the March Quarter outlook, we view Street assumptions (~20% Y/Y revenue growth and 5.0% Op. Margin) as reasonable, and thus Street estimates as bracketable…While we believe the Street has been concerned about the Revenue growth deceleration implied in the Q4 guidance, we believe several factors effectively explain the Q4 outlook: a material change in FX assumptions, the ongoing de-seasonalization of AMZN’s retail segment as it has evolved from a purely consumer discretionary company to more of a consumer staples company, and the full-year integration of Whole Foods… Note that over the last five years, AMZN’s revenue growth has consistently decelerated notably in Q4, only to reaccelerate in Q1..”
“We expect solid 4Q revenue of $72.1B (+20.1% FXN Y/Y), and while upside may be limited given well-discussed EU retail softness, AMZN should benefit from its US/UK free holiday shipping offer and potential share gains in toys… 2) We expect upside to our 4Q GAAP operating income estimate of $3.6B, with investor expectations likely $4B+… 3) We believe AMZN will guide the high end to revenue reacceleration in 1Q, though we recognize there are multiple timing/comp dynamics and accounting changes that combined could be a modest headwind to AMZN’s typical reacceleration… 4) We believe 1Q profit expectations are reasonable, with our $3.25B estimate modestly above $3.0B consensus…”
“Investors’ primary focus into results is revenue growth…..the vast majority of investors we speak with remain focused on the risk of further deceleration in Amazon’s growth rate… While concerns around growth and the health of the consumer continue, we believe share gains at Amazon and the number of opportunities for investment present more than enough runway for consolidated growth to remain above investors’ key 20% benchmark… We believe buy-side expectations for 4Q18 operating income are above the high-end of company guidance, given the level of outperformance seen in recent quarters, strength in reported e-commerce growth, and the momentum in higher margin businesses..”
“We like AMZN shares given positive holiday E-commerce trends, strong growth in the high-margin AWS and ad segments, and a more attractive valuation… We expect guidance for 1Q at the high end to show acceleration, though paid unit growth and online stores revenue likely continue to decelerate. For AWS, we take our estimates up slightly on revenue and margins.. We look for ad revs to grow +60% ex-accounting change and see scope for upside given a seasonally strong quarter on the back of improved product from a year prior…”
“We expect a strong performance, with total revs of +19% Y/Y, driven by share gains from retail, robust 3P and AWS, and a growing online ad segment… Our research indicates accelerating Y/Y growth Q/Q in e-commerce for 4Q, on the back of low unemployment and favorable consumer sentiment… However, we note that AMZN has had a mixed history in surpassing Street expectations for 4Q revs, with last year being the first time since 4Q 2009 to do so…History shows that Amazon’s has had limited success in exceeding Street expectations for revs in 4Q, likely due to the lack of visibility at the time guidance is given, and difficulties in forecasting a high amount of sales volume in such a small window, in our view…”
“Our estimates are for revenue, operating income, and EPS of $63.26 billion, $3.47 billion, and $5.68, vs. consensus of $60.96 billion, $2.90 billion, and $4.45… Given that revenue excluding physical stores and the impact of the accounting change grew by $10.51 billion in Q1:18, a top-line guide with a mid-point of $61.5 billion seems reasonable…The “tens of millions of people” who started Prime free trials or paid memberships over the holidays should boost subs revenue and spending… High-margin third-party seller services should allow profit upside at Amazon’s discretion…”
Originally published at CNBC