AMZN report - Zacks Investment Research



| Inc. |(AMZN – NASDAQ) |$1,609.08 |

Note: This report contains substantially new material. Subsequent reports will have changes highlighted.

Reason for Report: 1Q18 Earnings Update

Prev. Ed.: Mar 28, 2018; News Update and Changes in Estimate

Firms’ Recommendations: Positive: 94% (31 firms); Neutral: 3% (1); Negative: 3% (1) Prev. Ed: 33, 3, 1

Firms’ Target Price: $1,793.25 (↑$112.15 from last edition; 32 firms) Firms’ Avg. Expected Return: 11.4%

Note: A flash update on 1Q18 earnings was done on Apr 27, 2018

Note: Though dated May 10, 2018, the data in the tables below are as of Apr 30, 2018.

Note: The tables below (Revenues, Margins and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table are taken from reports that did not have accompanying spreadsheet model.

Note: We do not have access to firm reports presenting Sell rating on AMZN

Portfolio Manager Executive Summary

Inc. (AMZN) is the world's leading online merchandiser. The company directly sells or acts as a platform for the sale of a broad range of products, including books, music, videos, consumer electronics, clothing and household products. The company has organized its operations into three segments North America, International and Amazon Web Services (AWS).

Net sales increased 30.8% to $177.87 billion in 2017.

Key factors for evaluating an investment strategy for Amazon are as follows:

Competition: Amazon’s major competitors are eBay and Alibaba. AWS continues to grow on the back of expanding enterprise customer base. The company has gained a competitive edge over its retail peers due to reliability, popular Prime loyalty program, and sophisticated network of fulfillment centers that drives selection and convenience. However, increasing competition from the likes of Alphabet to create an outsourced storage/computing services business could impact AWS’ momentum in the long haul.

Foreign Currency fluctuations: A significant portion of Amazon’s revenues comes from its international business, exposing the company to foreign currency fluctuations.

Of the 33 firms covering the stock, 31 gave positive ratings, one provided a neutral rating and one rendered a negative rating. Target prices range from $1,300 to $2,200 with the average price being $1,793.25.

Positive or equivalent (94%; 31 firms): These firms are optimistic about Amazon’s leading position in the e-commerce space and its high margin Amazon Web Services (AWS) business. They believe that the online retail space still has plenty of room to grow and Amazon’s size advantage, strong global network of fulfillment centers and investments in cutting-edge technologies will help it expand market share. They believe Amazon will continue to seize market share from competitors owing to its solid reputation for reliability, popular Prime loyalty program, and sophisticated network of fulfillment centers that drives selection and convenience. These firms are also encouraged by growth of the company’s high margin AWS business. They believe that the Whole Foods acquisition creates another growth opportunity through grocery expansion. Moreover, these firms believe that Amazon is well poised to gain share in new markets such as advertising, business-to-business commerce, and healthcare. Further, advertising is now touted as the next catalyst over the long term. Most of these firms believe that Amazon has the flexibility to lower investments over the next few years, which will translate into higher levels of profitability.

Neutral or equivalent (3%; 1 firm)

Negative or equivalent (3%; 1 firm)

May 10, 2018

Overview

Based in Seattle, WA, is the world's leading online merchandiser. The company, which began as a bookseller in 1995, sells a wide range of products through its online stores as well as through partnerships (and co-branded sites) with online and traditional retailers. It operates websites in the U.S., Canada, the U.K., Germany, France, China and Japan. Amazon was one of the first to sell online, setting a benchmark in the retail industry. The company operates websites that sell various products and services, which primarily include apparel, shoes and accessories; health and personal care; baby care products; books; camera and photography; and consumer electronics. Amazon Prime is a membership program that offers fast shipping of purchases.

Amazon has organized its operations into three segments North America (60% of 2017 sales), International (30%) and AWS (10%).

More information is available from the website, . The company’s fiscal year coincides with the calendar year.

Key investment considerations as identified by the firms are as follows:

|Key Positive Arguments |Key Negative Arguments |

|Amazon is favorably positioned to capitalize from two of the fastest growing |Increased competition from traditional retailers could force intense |

|global markets, e-commerce and cloud computing. |pricing pressure and advertising rate inflation. |

| | |

|New product offerings will be able to improve consumer’s buying efficiency. |Heavy infrastructural and technological investments and low pricing |

| |strategy can dampen profitability. |

|Leadership position in cloud computing will continue to boost revenues and | |

|margins | continues to be vulnerable to forex volatility in the euro, |

| |pound, yen and Canadian dollar currencies. |

|Amazon will continue to scale its international operations through Amazon | |

|Prime and the additional categories. |Despite its strong competitive position, Amazon faces tough competition|

| |from other big Internet players, such as eBay and Alibaba. |

|Amazon has a strong balance sheet that provides flexibility for growth, | |

|acquisitions and share buybacks. | |

May 10, 2018

Long-Term Growth

E-commerce and cloud computing markets are two of the fastest growing global markets. Firms believe that Amazon is well positioned to grow in these markets leveraging its leadership position, strong competitive position and reliability. Long-term planning and consequent heavy investments in fulfillment centers, cloud data centers and Prime loyalty program are believed to help the company increase its revenues and margins over the long run.

Firms are of the view that the company has a number of competitive advantages such as enhanced convenience and broader selection of products. The firms believe that efficient inventory and payables management will continue to positively impact the company’s free cash flow.

Firms are also positive about Prime, Amazon’s promotional shipping loyalty program. Prime memberships help repeat sales of not just general merchandise but also media (books, music, video, etc). Amazon continues to push advantages exclusively to Prime members thus encouraging them to spend more on Amazon. This in turn lures more users to Prime and generates more sales for Amazon.

Firms are also of the opinion that has laid a strong foundation for growth through its AWS business, leveraging on its early leader advantage. Amazon was one of the first companies to recognize the potential of web services and the flexibility that it could give to businesses. They believe that cloud is the next phase in technology and a significant growth driver for the company. It will eventually turn into a solid revenue stream for the company.

The company has successfully built highly defensible elements in its business model (efficient distribution systems, large and loyal customer base, aggressive/discounted pricing, vast product selection, consumer trust, hybrid offering from Amazon and third-party merchants) that are entirely underpinned by technology and are believed by firms to allow the company to extend and differentiate via these advantages in the consumer market.

The firms are of the opinion that Amazon has experienced a sales shift toward its international operations. Amazon has been introducing several products for international markets that are expected to drive demand. Increasing product offerings and market penetration may offset persisting economic challenges. They expect Amazon to continue to gain market share internationally.

Lastly, offline retail offers vast opportunities to Amazon. With traditional retailers losing ground in Amazon’s online presence, the company has started to encroach upon their turf directly. The company has big brick-and-mortar plans with books and grocery. While this is Amazon’s way of handling competition in online retail, firms believe it will help the company to expand to the considerably large customer base that still prefers to and will continue to shop at physical stores.

Feb 13, 2018

Target Price/Valuation

Provided below is a summary of target price and rating as compiled by Zacks Research Digest:

|Rating Distribution |

|Positive |94%↑ |

|Neutral |3%↓ |

|Negative |3%↓ |

|Avg. Target Price |$1,793.25↑ |

|Digest High |$2,200.00↑ |

|Digest Low |$1,300.00↑ |

|Firms with Target Price/Total |32/33 |

Risks to the target price include increasing competition from online and multi-channel retailers, consumer spending patterns, higher shipping costs, inability to improve international profits, operating margin pressure from higher investments, execution risk associated with expansion into new product categories and markets; competition in digital downloads from Apple’s iTunes, slowdown in growth of international markets and foreign exchange rate volatility.

Recent Events

On May 10, 2018, Amazon announced that leading European airline Ryanair is shifting its infrastructure to AWS. The company plans to close most of its datacenters over the next three years.

On May 9, 2018, Amazon announced the opening of interactive Amazon Experience Centers within select Lennar model homes across the United States. These model homes demonstrate how customers can use Alexa in their everyday lives.

On May 2, 2018, Amazon announced the second season of its original series Goliath, starring Golden Globe winner Billy Bob Thornton. The show will be streamed on Amazon Prime starting Jun 15.

On May 1, 2018, Amazon announced that Oath, a subsidiary of Verizon has selected AWS as its preferred public cloud provider. Oath will shift legacy workloads and new cloud-based applications across its portfolio of dozens of media and technology brands, including , Yahoo Finance, and Yahoo Sports to AWS.

On May 1, 2018, Amazon announced plans to expand its Boston Tech Hub and create 2,000 technology jobs in fields including machine learning, speech science, cloud computing, and robotics engineering.

On Apr 30, 2018, Amazon announced plans to expand its Vancouver Tech Hub and create an additional 3,000 jobs in fields including e-commerce technology, cloud computing, and machine learning.

On Apr 26, 2018, Amazon reported 1Q18 results. Highlights are as follows:

• Net sales of $51.04 billion surged 43% y/y.

• GAAP EPS of $3.27 soared 121% y/y.

• Amazon acquired Ring, a home security company.

On Apr 24, 2018, Amazon announced that Amazon Key service now offer customers an option to receive deliveries inside their vehicles.

On Apr 24, 2018, Amazon announced that it has greenlit season two of Tom Clancy’s Jack Ryan ahead of its global series debut set for Aug 31 on Prime Video.

On Apr 23, 2018, Amazon and Whole Foods Market launched free two-hour delivery of natural and organic products from Whole Foods Market through Prime Now in Denver, Sacramento and San Diego.

On Mar 28, 2018, announced that GoDaddy has selected AWS. GoDaddy will migrate most of its infrastructure to AWS as part of a multi-year transition.

On Mar 26, 2018, Amazon announced that it has greenlit a straight-to-series order of a four-hour miniseries based on the epic saga of Hernan Cortes.

On Mar 20, 2018, Amazon announced that Prime Video is launching additional sports programming on the service underneath the All or Nothing series.

On Mar 19, 2018, Amazon unveiled GameOn, a cross-platform, competitive gaming service for developers, with which they can easily integrate competitions natively into their games on mobile, PC, and console through a set of flexible APIs.

On Mar 6, 2018, Amazon Studios announced it has greenlit Undone—a direct-to-series animated show co-created by Raphael Bob-Waksberg (BoJack Horseman) and Kate Purdy (BoJack Horseman). The series is expected to premiere in 2019 on Prime Video in over 200 countries and territories exclusively for Prime Members.

On Mar 3, 2018, Amazon reportedly decided not to sell any of the newer products from Google's smart home division Nest.

Revenues

According to 1Q18 press release, net sales of $51.04 billion surged 43% y/y and comfortably surpassed the management’s guided range of $47.75-$50.75 billion. After adjusting for foreign exchange, revenues increased 36% y/y.

Product sales (61.9% of sales) increased 33.2% y/y to $31.61 billion. Service sales (38.1% of sales) surged 62.2% from the year-ago quarter to $19.44 billion.

Provided below is a summary of revenue as compiled by Zacks Research Digest:

|Revenues ($ in millions) |1Q17A |

|Copy Editor |Tuhin Roy |

|Content Ed. | |

|QCA / Lead Analyst |Aniruddha Ganguly |

|Reason for Update |1Q18 Earnings Update |

[pic]

-----------------------

May 10, 2018

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download