Tech Trader Daily
April 26, 2013, 2:51 P.M. ET
Amazon Falls 6%: Bull, Bear Debate Slowing Growth, Profit Potential
By Tiernan Ray
Shares of Amazon.com (AMZN) are down $17, or 6%, at $257.70, following a Q1
earnings report last night that featured lower-than-expected revenue, higher
-than-expected operating income, and a forecast for revenue this quarter
below expectations.
Amazon shares today reflect not only last night’s results, but also,
perhaps, word that a bill to pass Internet sales tax passed one of several
votes in the Senate last night by 63 to 30, as reported by The Hill‘s
Ramsey Cox.
The sell side’s price targets are mostly staying put today, and estimates
are being trimmed slightly here and there. Bears continue to stick to
concerns that growth is slowing. Bulls continue to point to the relatively
high level of growth that remains for gross margin, and the continue upside
in operating profit.
It’s something of a stalemate, in other words:
Bullish!
Colin Sebastian, R.W. Baird: Reiterates a Buy rating and a $325 price target
. Sebastian cut this year’s estimates to $75.6 billion, and cut his GAAP
EPS estimate to $1.13 from $1.18, but raised his estimate for “consolidated
segment operating income,” or CSOI, to $2.07 billion from $2.05 billion.
“CSOI of $441 million (2.7% margin), easily beat consensus of $343 million
(2.1% margin) as gross margin hit an all time high. While incremental margin
turned lower in Q1, we note that NA segment margins are impacted by
depreciation of AWS investments vs. moderating year over year declines in
International margins. Amazon continues to invest in significant growth
opportunities in retail and technology (AWS), which in our view, justifies
management taking a longer-term view of the margin profile [...] While unit
and customer growth decelerated, we note that comps are easier in 2H, and
Amazon continues to build significant market share. Maintain Outperform
rating [...] We believe that a wide guidance range reflects some macro
uncertainties, as well as the ongoing variability between first- and third-
party unit mix.”
Youssef Squali, Cantor Fitzgerald: Reiterates a Buy rating, and raises his
price target to $315 from $300. Squali slightly trimmed estimates for this
year to $74.093 billion in revenue, $5.09 billion in Ebitda, and 98 cents in
EPS, down from a prior $74.096 billion, $5.31 billion, and $1 per share. “
Much of the upside in operating profit was driven by the 260bps Y/Y increase
in gross margin (26.6% vs. 24.0% in 1Q:12), more than offsetting the
increase in operating expenses (fulfillment, S&M and technology) [...] We
believe the improvement in gross margin was primarily driven by a) faster
growth in 3P units vs. total paid units, b) growing share of digital sales (
U.S. especially), and c) lower shipping costs. As sales of digital goods
continue to outpace the rest of the business and as Amazon opens more
distribution centers and reduces shipping time/cost, we believe the positive
trend in underlying margins will continue.”
Ben Schachter, Macquarie Equities Research: Reiterates an Outperform rating
and a $305 price target. Schachter raised his 2013 estimates to $73.53
billion in revenue, $5.53 billion in Ebitda, up from $73.3 billion, $5.35
billion, while maintaining his estimate for $3.04 per share in adjusted EPS.
“AMZN posted another solid quarter. A quarter, however, that is unlikely
to change many opinions about the stock. We remain bullish given the margin
potential, growing market opportunities in emerging businesses (AWS,
advertising, devices, growing digital ecosystem), solid customer growth, and
overall
strong execution. Bears will likely continue to focus on declining unit
growth,
relatively weak 2Q guidance, and near-term valuation.One of the major
drivers on a y/y basis continues to be the increasing penetration of 3P
sellers as a percent of total unit sales, reaching 40% in the first quarter,
which was up from 39% In both 4Q and 1Q’12 (and only slightly below the
seasonal peak of
41% in 3Q’12). The agency business flows through AMZN’s financials at near
100% gross margin (excl. FBA costs), though this will be offset by close to
0% GM hardware sales as well as video content costs. We believe that these
trends in aggregate will continue to push GM higher going forward, as third-
party rises as a percentage of total unit sales .”
Daniel Kurnos, The Benchmark Company: Reiterates a Buy rating, and a $330
price target. Kurnos is keeping his estimate for $77 billion in revenue this
year, adjusted Ebitda of $5.3 billion, and $3.30 per share in adjusted EPS.
“Although unit growth slowed 200bps q/q to 30%, excluding digital, 3P
sales increased by 300bps q/q as a percentage of physical units, which,
combined with the ongoing digital shift, led to OIBDA of $1.1 billion, up 37
% y/y, exceeding our $979 million estimate. Operating income of $181 million
came in well ahead of consensus despite a significant ramp in D&A [...]
Consolidated Media sales growth ex-FX was flat sequentially on soft
International Media growth. We think International Media may remain muted
until a better digital ecosystem is established and Amazon builds out its
subscription and a la carte platforms in additional geographies.”
Bearish!
Anthony DiClemente, Barclays Capital: Reiterates an Equal Weight rating and
a $260 price target. DiClemente cut his 2013 estimate to $75.56 billion in
revenue from a prior $77.2 billion, while raising his pro-forma operating
income forecast to $2.54 billion from $2.41 billion. His GAAP EPS remains at
$2.12. “Amazon continued its trend from last quarter of decelerating
revenue growth coupled with improving margins, as revenue grew 22% Y/Y
compared to our estimate of 24%, and the company’s 2.7% CSOI margin topped
our estimate by 60bps. Shipping efficiencies and increased revenue
contribution from AWS and 3P sales helped drive the margin expansion, while
slowing international growth, particularly in the media segment, weighed on
Amazon’s top-line. Shares traded down in the after-market as we believe
investors may be focused on the company’s 4th consecutive quarter of
deceleration in paid-unit growth compounded by weaker than expected 2Q
guidance.”
Doug Anmuth, J.P. Morgan: Reiterates a Neutral rating, and cuts his price
target to $285 from $300. Anmuth cut this year’s estimate to $73.92 billion
in revenue, $2.05 billion in CSOI, and $1.13 per share in GAAP profit, down
from $75.54 billion, $2.12 billion, and $1.63. “Amazon’s 1Q13 results
were mixed and overall support our view that gross profit and other key
metrics across the Amazon platform could continue to slow in upcoming
quarters [...] There are clearly a lot of moving pieces in Amazon’s
business and we recognize they may not all move together in any one quarter.
But even at 35% gross profit growth and 30% unit growth—strong absolute
levels—they do represent a more material slowdown compared to results in
recent quarters [...] Slower gross profit growth was due to the deceleration
in 3P sales – which grew approximately 39% Y/Y in 1Q according to our
estimates, down from 43% in 4Q – as well as continued investments in
international and increased competition in the US.”
Eric Sheridan, UBS: Reiterates a Neutral rating and a $275 price target.
Sheridan trimmed this year’s estimates to $74.75 billion in revenue from $
74.87 billion, while raising his CSOI estimate to $1.73 billion from $1.56
billion. He models a net loss of 30 cents per share this year, on a GAAP
basis, in contrast to most analysts’ profit projection. Similar to last
quarter’s results, we continue to see a trend of slight downward revision
to revenue estimates and an upward move on margins as causing a mixed story
for Amazon’s stock in the medium term. Offsetting our improved gross margin
outlook is a slight increase in our expectation of fulfillment costs for
the year. The combination of excess capacity (exiting the Q4 peak), a still
growing fulfillment center count, and new deliver initiatives are the
drivers of this change. Additionally, we would note that Amazon’s effective
tax rate should revert to more normalized levels throughout the remainder
of 2013, after benefiting from a one-time benefit in Q1 (Federal R&D tax
credit).
Colin Gillis, BGC Partners: Reiterates a Hold rating, and a $245 pric3e
target. “Haiku: This is not leverage; this is slowing revenue growth, and
dreams of profit [...] While 21.9% top line growth is respectable, it is no
longer among the elite revenue growers in the S&P500. To place the slowdown
in perspective, Amazon’s March quarter revenue growth YoY in 2011 was the
14th best among S&P500 companies. In March 2012 quarter the company produced
the 19th best revenue growth among the S&P500. This quarter revenue growth
slipped to the 42nd best among the S&P500 according to data from Bloomberg [
...] Shares of Amazon are underperforming the broader market with a total
return of 1.9% year-to-date versus 11.5% for the S&P500 index (assumes
dividends reinvested). We maintain that forward consensus estimates,
including $10 of earnings per share in 2015, may prove elusive as the
company continues to find new areas of investment.
Shares of Amazon are underperforming the broader market with a
total return of 1.9% year-to-date versus 11.5% for the S&P500 index (assumes
dividends reinvested). We maintain that forward consensus estimates,
including $10 of earnings per share in 2015, may prove elusive as the
company continues to find new areas of investment.
