Amazon Remains On Track For Solid Top-Line Growth In Q1

The challenges faced by Amazon.com, Inc. AMZN in 4Q are unlikely to have continued into 1Q. JPMorgan’s Doug Anmuth maintained an Overweight rating for the company, while reducing the price target from $825 to $822. The analyst said that Amazon’s 4Q challenges were driven by high FBA demand, which is unlikely to have continued in 1Q.

1Q Expectations

Analyst Doug Anmuth expects Amazon to report net sales of $28.1B, 1 percent above the midpoint of its guidance range of $26.5B-$29.0B and 0.5 percent higher than the Street consensus of $28.0B. EGM revenue is expected at $19.6B.

CSOI is estimated at $1.3B, which is at the high end of Amazon’s guidance range of $700M-$1.3B and 7 percent higher than Street consensus of $1.2B. AWS revenue is expected to grow 65 percent to $2.6B in 1Q.

Other Expectations

AWS revenue is expected to grow 46 percent to $11.5B in 2016. Although AWS could lose a some of its 85-90 percent market share over time, it would “continue to be the dominant player in a much bigger market,” Anmuth wrote.

The CSOI estimate for 2Q has been reduced from $1.7B to $1.6B, with margin expectations declining from 6.0 percent to 5.6 percent. The analyst commented that near-term performance may be impacted by potential increases in overall investment spending and AWS’ forex tailwind starting to reverse. Amazon seems to be on track to posting strong topline growth and margin expansion in 2016.

Although the price target has been reduced, the long-term view of Amazon remains the same. Anmuth believe the company may “continue to invest aggressively while increasing profitability as it is now working from a much deeper pool of gross profit dollars driven by topline growth, 3P, and AWS.”