Amazon's Q1 Underscores The Platform's Momentum, Continued Path Toward Long-Term Bull Case

Amazon.com, Inc. AMZN reported robust 1Q16 results, with the revenue beating expectations and GMV accelerating.

Morgan Stanley’s Brian Nowak maintained an Overweight rating on the company, with a price target of $800.

“Accelerating top-line and expanding margins (even through higher than expected spend/investment) underscore the platform's momentum and continued path toward the long-term bull case,” Nowak mentioned.

Accelerating Metrics

The analyst noted Amazon’s share-gain momentum persisted in 1Q16, with revenue coming in ahead of the consensus and the estimate, driven primarily by international retail, which in turn was due to the growing impact of Prime.

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Nowak views Prime as the company’s “main behavioral modification tool,” which is leading subscribers to spend more on the platform, and stated that management said Prime was “really showing up in customer engagement and customer purchases.”

Nowak believes the increasing mix of higher spending was driving acceleration in Amazon’s retail same store sales, with retail gross profit dollars per customer growing 14 percent year-on-year in Q1.

Overall gross merchandise value (GMV), which Nowak said was “the true measure of AMZN's share gains of retail consumer expenditure,” saw the second fastest growth rate in 1Q, since the beginning of 2013.

Guidance and Outlook

Nowak pointed out that the growth in profit dollars enabled Amazon to invest more aggressively than before, while still being able to generate margin expansion and higher than anticipated retail profitability.

The analyst expects this investment to help make the ecosystem stronger and lead to more outsized share gains and increased profitability in the long term.

The company expects these trends to continue in 2Q16, since Amazon guided to Q2 revenue ahead of the estimate and the consensus.