An Amazon Investment Takes Guts As Story Shifts From Sales Growth To Earnings And Cash Flow

Although Amazon.com, Inc. AMZN reported its Q4 revenue slightly higher than the midpoint of its guidance range, the figure came in short of Street expectations. This was unusual, but what was particularly surprising was to see revenue growth expectations for 2017 faltering, Nomura’s Anthony DiClementi said in a report.

DiClementi maintains a Buy rating on the company, while reducing the price target from $950 to $925. He commented that “intestinal fortitude” was required to invest in the company.

Revenue Pressure, Aggressive Investment Ahead

While Amazon’s Q4 revenue was short of expectations, the biggest miss came from International. DiClementi noted, however, that currency headwinds for international had been stronger than expected.

The high-end of the company’s revenue guidance for Q1 is below Nomura’s prior estimate. “If revenue is going to decelerate for AMZN, then the burden shifts to operating income and FCF to carry the financial story,” the analyst wrote.

Although both operating income and FCF were strong in Q4, the operating income guidance and high capital expenditure imply further investment ahead, DiClementi stated. He reduced the EPS estimates for FY 2017 and FY 2018 from $8.20 to $7.66 and from $14.13 to $13.37, respectively.

At last check, shares of Amazon were down 3.21 percent at $813.