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Retail monster Amazon.com reported better than expected fourth quarter earnings Thursday, beating on EPS and on revenue.  Cloud division AWS continues to dominate. However $AMZN lowered guidance going forward sending the stock lower.

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CEO Jeff Bezos Adding To His 'World's Richest Man Stats 

Amazon.com Inc. (NASDAQ: $AMZN) Reported After Close Thursday

$6.04 Beat $5.67 EPS Forecast and $72.4B Beat $71.8 Billion Forecast in Revenue 

Earnings

Amazon.com Inc. (NASDAQ: AMZN) reported fourth-quarter results after the close on Thursday that beat analyst consensus estimates, but lowered first-quarter guidance reported adjusted earnings of $6.04 per share on revenue of $72.4 billion ahead of analysts adjusted earnings of $5.67 per share and revenue of $71.8 billion. Revenue was up 20% from the year-ago period, which was its slowest quarterly growth in more than three years.

Amazon.com Inc NASDAQ: AMZN

Market  Reaction: After Hours $1,635.00▼ 83.73 (-4.87%)

Earnings Highlights

  • Cloud-computing unit, Amazon Web Services, showed revenue of $7.4 billion, up 45% from the year-ago period, with operating income of $2.17 billion.
  • Amazon E-Commerce Sales Though holiday e-commerce sales were largely positive for Amazon, investors are concerned about decelerating growth in Amazon's retail segment.
  • Recent changes to Amazon's third-party sales platform, in addition to new regulations in India and global economic softness, could muddy near-term revenue and margin reports.
  • Amazon’s subscription services increased by 25% as holiday season has attracted more customers to begin paid memberships.
  • Third party seller services showed a 27% jump in their metrics. Due to the increase in orders for holiday season, the company has faced a 23% increase in worldwide shipping costs in the fourth quarter. And the headcount was also lifted by 14% for countering the seasonal demands. 
  • The Amazon Echo Dot, voiced by the digital assistant called Alexa, was the best-selling item across all products on Amazon globally during the fourth quarter.

"The number of research scientists working on Alexa has more than doubled in the past year, and the results of the team's hard work are clear," Amazon Chief Executive Jeff Bezos said in prepared remarks. "In 2018, we improved Alexa's ability to understand requests and answer questions by more than 20% through advances in machine learning."

Amazon earnings Q4 2018

Outlook

For the first quarter, Amazon said it expects revenue to be in the range of $56 billion to $60 billion, growth of 10% to 18% from the year-ago period. It's below analyst estimates of $61 billion. 

This guidance anticipates an unfavorable impact of about 210 basis points from foreign exchange rates. Operating income is expected to be $2.3 billion to $3.3 billion, compared with $1.9 billion in the first quarter of 2018.

 

Amazon Q3 Earnings Recap

$5.75 Beat $3.12 EPS Forecast BUT $56.6 B Missed $57.08 Billion Forecast in Revenue 

Earnings

Amazon.com Inc. (NASDAQ: AMZN) reported third-quarter results after the close on Thursday of net income of $2.9 billion, growing eleven times its last-year income of $256 million. Earnings rose to $5.75 per diluted share from $0.52 per share a year ago which beat analysts consensus are for an EPS of $3.12 but missed on revenue of $56.60 under forecast $57.08 billion in revenue. $AMZN ahares are in a 52-week range of $962.50 to $2,050.50.

Market Reaction Amazon.com Inc NASDAQ:

AMZN After Hours $1,684.05▼ 98.12 (-5.51%)

Earnings Highlights

AMZN Earnings Q3 18

Outlook

Amazon projected holiday-quarter sales of $66.5 billion to $72.5 billion, while analysts had projected revenue of $73.8 billion for the fourth quarter. 

Operating income is now seen be about $2.1-3.6 billion.

What Analysts Will Be Watching

Prime Membership 

The release comes after last quarter CEO Jeff Bezos revealed for the first time its global Prime membership total in a letter to shareholders last quarter when it went over 100 million members.

Last quarter Deutsche Bank’s Lloyd Walmsley says he likes the “momentum” in Amazon’s Prime membership service, and Amazon’s recent price increases there.  "Amazon is seen as the alternative to [Alphabet's] (GOOGL) Google and Facebook (FB),” he wrote.

e-Commerce Expansion

Investors will want to hear Amazon's  e-commerce expansion into retail markets like apparel and grocery, in particular Wholefoods.

This stock is widely held and many have the view of Piper Jaffrey’s Michael Olson who ranked Amazon as his number one pick heading into earnings with his “Inaugural Faang Rank,” in which he attempts to “pick your favorite child.” Is this just getting a little silly?  Note he has an Overweight rating on all the Faang names.  He wrote of the “massive new addressable markets that Amazon is attacking,” across grocery, pharmaceuticals, gaming and others.”

By the way his Faang ranks are 1. Amazon $AMZN 2. Netflix $NFLX 3. Apple $AAPL 4, Facebook $FB 5. Alphabet $GOOGL.

Amazon Web Sevices (AWS)

The biggie is cloud behemoth Amazon Web Services (AWS) cloud. Microsoft and SAP both reported robust Cloud numbers. The big question is that from AWS or new customers?

Prior to Q2 Deutsche Bank’s Lloyd Walmsley, rates $AMZN his “Top Pick,” and reiterated a Buy rating heading into earnings and raised his price target to $2,200 from $1,800, writing that worries about higher spending are offset by the company’s expanding empire of initiatives.

"We recognize the concerns, however modest, regarding potential for higher near-term investment in fulfillment facilities, last-mile delivery, international markets (particularly another $2B in India), AWS. These concerns are far outweighed by the large and expanding TAM most recently with the acquisition of PillPack as well as the expansions into Brazil and Australia,” his note said.


AWS architecture

In cloud-computing infrastructure, Amazon has a substantial market share lead over Microsoft Azure, Google's Cloud platform and IBM, as well as other players like Alibaba and Oracle. While AWS has maintained growth above 40 percent, Microsoft and Google are currently expanding much faster and picking up share. AWS produced $1.4 billion in operating income in the first quarter. That accounted for 73 percent of Amazon's operating income in Q1 and continues to grow.

AWS is the envy of Apple, Oracle, Google, IBM and every other niche cloud provider. AWS is the leading platform in this growth market.  Amazon Web Services., Amazon's cloud business in just ten years has become the fifth-largest business software provider in the world.

Amazon has proven that it can diversify beyond e-commerce whilst at the same time Microsoft, Google, IBM and others are all chasing AWS in the cloud.

 If AWS continues to grow as much as it did lin 2017 it could pass SAP in size before the end of 2019. SAP's 2017 revenue of $26.5 billion was up 6 percent, and the company expects the same growth rate in 2018. Analysts are currently projecting 38 percent growth at AWS this year, according to FactSet.

AWS is almost twice as big as Salesforce, which generated sales of $9.9 billion over the past four quarters, growing 25 percent. 

Brick and Mortar Acquisitions and Partnerships

Over the past few years Amazon has been on a buying spree with WholeFoods, talk of Amazon Moving Into Real Estate and last quarter the deal with Sears where Kenmore appliances will be sold through Amazon. Investors will be looking for updates on these and others and a clarification of just what is their strategy going forward. One I would like to hear is about the Whole Foods locations and the $400 billion plus pharmacy market.

There is also the latest retail partnership, this with Kohl’s Corporation $KSS. Amazon will  start selling smart-home products in Kohl’s stores and cater for product returns. With Whole Foods, Sear and now Kohls Amazon is stealthly building brick-and-mortar retail for it's digital base.

MW AMZN W 10 20 18

 

Source: Amazon.com, Inc

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