Tread Cautiously Heading Into Market-Darling Amazon's Q1

Ross Sandler of Barclays initiated coverage of Amazon.com, Inc. AMZN in late March and suggested the stock will be worth $1 trillion one day. Despite the lofty long-term valuation, the analyst believes investors should be "treading cautiously" heading into the company's first-quarter earnings report.

Retail Estimates

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In a research report on Thursday, Sandler stated that his checks are pointing to a "solid" performance for AWS, but revenue growth could also decelerate based on recent price cuts. In addition, the analyst is expecting AWS's CSOI to fall short of the consensus estimates.

Sandler is modeling the segment's revenue to be $3.7 billion and CSOI of $1.04 billion.

Moving on to the core retail segment, Sandler is estimating revenue will be in-line with expectations. The analyst added that Prime members account for 65 percent of total gross merchandise volume (GMV) and is growing at a faster rate than non-Prime so this presents an upward pull on revenue growth, unlike what was seen in prior years.

The analyst is modeling revenue of $31.2 billion and retail GP of $9.3 billion. Also, CSOI is expected to decline on a year-over-year basis in a dollar and margin amount and is expected to be "the low-water mark in 2017 for retail" based on heavy investments.

Sandler also believes consensus estimates for the second quarter are "aggressive" and the company could guide its operating income below the Street's $1.5 billion estimate.

Bottom line, the analyst reaffirmed his long-term bull thesis and investors should consider adding to their positions on any downtick.