Amazon's Quarterly Estimate Miss Forgiven By This Analyst

Despite the disappointing earnings and guidance, Wedbush’s Michael Pachter noted that Amazon.com, Inc. AMZN continues to deliver significant earnings growth.

Pachter reiterated an Outperform rating on the company, with price target of $900.

Focus On Growth

“While the outlook for FY:16 has been tempered, the company’s outsized earnings beats in 1H:16 and still meaningful y-o-y EPS growth in Q3 are a signal that Amazon remains focused on growing profits despite the quarterly variability,” the analyst mentioned.

Amazon Web Services (AWS) delivered gross and operating margin growth, as revenues continued to ramp.

Pachter expects the mix of Fulfillment by Amazon (FBA) and AWS to driver additional gross margin expansion, with Prime membership growth continuing “unabated.”

“We expect the monthly Prime subscription offering to bolster the number of Prime customers seasonally, particularly around the holidays, and although gross margin expansion is being offset by its increased video content spending, the trajectory is clear and investment strategy purposeful,” the analyst went on to say.

Q3 Results

Although Amazon reported its Q3 revenue within the guidance range, lower gross margins led to a meaningful earnings miss versus the estimates.

The operating income of $575 million also missed the estimates, although it was in line with the guidance range, driven by video content spend that was $300 million above the estimate.

The GAAP EPS came in at $0.52, well below the estimate and the consensus.

The EPS estimates for FY:16 and FY:17 have been lowered.