Credit Suisse Still Buying Amazon, Believes Street Continues To 'Mismodel' Against Headline Guidance

• Amazon.com, Inc. AMZN shares are down 6 percent since December 29.
• Credit Suisse’s Stephen Ju maintained an Outperform rating for the company, with a price target of $800.
• Although there was a headline miss on CSOI guidance, there is upside to EBITDA and FCF forecasts, Ju stated.

Amazon reported in-line 4Q15 results, with revenue at $35.7b, representing 26 percent growth ex-FX. CSOI came in at $1.75b, versus $1.04b in 4Q14, and the Credit Suisse estimate of $1.38b. CSOI margin was at 4.9 percent, versus 3.5 percent in 4Q14, and 100bps higher than the Credit Suisse estimate of 3.9 percent.

Analyst Stephen Ju wrote, “We are buyers of AMZN shares, as we believe the Street continues to mismodel against the headline CSOI guidance.” He believes the reason for this is that the Street may not be accounting for capital/financing lease as part of CapEx, which results in an “undermodeling” of PP&E assets and D&A expenses, which in turn leads to an “overmodeling” of the CSOI.

Ju mentioned that from an EBITDA/FCF dollars perspective, Street estimates could be revised upwards, with a moderating of total CapEx, including capital/financing lease. He added, “We would hence take advantage of the disconnect in AMZN shares to either initiate/add to positions.”

AWS recorded 69 percent y/y growth, versus 78 percent in 3Q15 and 81 percent in 2Q15. Its margin expanded to ~29 percent, from 25 percent in 3Q15 and 17 percent in 4Q14. “Stronger Media revenue was offset by elevated shipping losses (rapid FBA adoption resulting in FC overcapacity and incremental discretionary fulfilment costs) leading to in-line retail gross margin (although expanding +240bps vs. 4Q14),” the analyst said.

The revenue and CSOI estimates for FY16 have been revised from $130.1b to $130b and from $6.2b to $6.7b, respectively. The adjusted EPS estimates for FY16, FY17 and FY18 have been raised from $10.30 to $10.84, from $13.50 to $14.98 and from $18.30 to $21.17, respectively.