Cowen Reviews Amazon Earnings

In a report published Friday, Cowen & Co analysts maintained a Market Perform rating on Amazon.com, Inc. AMZN, while raising the price target from $320 to $370. The company reported strong 1Q results. Amazon.com reported its 1Q15 revenue at $22.7 billion, representing 15 percent y/y growth. Excluding currency headwinds, the company generated 22 percent y/y revenue growth. The company achieved gross margin expansion to 32.2 percent, versus 28.8 percent in 1Q14. The figure was ahead of Cowen's estimate of 30.5 percent and was driven by AWS and rising 3P sales. In the report Cowen & Co noted, "AWS breakout revealed that AWS is profitable, as 2014 revenue was $4.6BN, up 49% y/y and CSOI (adj. op. inc.) was $660MM, down 1% y/y, implying a 14% CSOI margin vs. our estimate 2% estimate (see LINK to AWS model report). The AWS margins imply core NA eCommerce had CSOI margin of 2.5% in 2014, which also includes high margin adv rev as well as investments in Prime and other initiatives." "The sentiment into the print was that AWS had significant losses ($500MM-$1BN), implying AMZN's core NA eCommerce biz was running at 5%+ CSOI margins. We expected ~3% core biz margins in '14 and 4% in '15, which turned out to be closer than sentiment," the analysts wrote. Despite several positives at the company, including NA EGM growth, continued gross margin expansion, with rising 3P mix and AWS as well as Prime growth, Amazon.com will "need to show improving core biz margins over time off a lower base than consensus anticipated," the analysts added.