Credit Suisse Raises Target On Amazon To $880 Following Better-Than-Expected Q1

Amazon.com, Inc. AMZN reported a strong first quarter, beating expectations. Credit Suisse’s Stephen Ju maintained an Outperform rating for the company, while raising the price target from $800 to $880. The analyst pointed out that the company had generated growth against tough comps.

Amazon reported its 1Q revenue at $29.1bn, representing 29 percent ex-FX growth. CSOI was at $1.66bn, higher than the Credit Suisse estimate of $752mm. CSOI margin came in at 5.7 percent, significantly better than the 3.1 percent recorded in 1Q15, and higher that the Credit Suisse estimate by 300bps.

Reading Into The Results

“A confluence of increasing selection, Prime adoption, and Leap Day helped Amazon accelerate EGM revenue globally despite tougher comps,” analyst Stephen Ju wrote. AWS recorded 64 percent y/y growth, slightly lower than the 69 percent growth recorded in 4Q15.

“The pace of its core e-commerce gross margin expansion picked up once again, and this along with AWS contribution helped to drive gross profit dollars 9% beyond our estimate. And with OpEx largely in-line CSOI at $1.7b exceeded consensus expectations while aggregate CapEx (including capital + financing leases) at $2.4b fell short of our $2.7b estimate,” Ju mentioned.

Investment Thesis

The Street seems to be underestimating Amazon's ecommerce franchise, Ju said. He added that Amazon’s FCF generation is likely to improve, “as capital intensity to run AWS is starting to level off with usage growth now below 100%.” Moreover, the ecommerce segment is likely to achieve operating margin expansion going ahead, with stabilizing shipping losses.