Evidence Suggesting Amazon's Q1 Will Be In Line Or Better

AWS: The Star Business

Analysts Jason Helfstein, Timothy Horan, Jed Kelly and Alec Brondolo believe volume for AWS remains solid, with pricing more stable than expected. The analysts noted that the previous price reduction took effect on December 1, 2016, and the increase was relatively minor.

"AWS remains focused on bundling value-added services to accelerate client migration," the analysts said. Going by their channel checks, the analysts expect a rebound in capital expenditure in 2017.

EGM Growth Could Be 25 Percent Or Better

The firm found a loose directional correlation between the historical brick-and-mortar retailer gross margins and Amazon's North American Electronics & General Merchandise revenue growth.

"The Street is modeling 1Q B&M retailer gross margins down 36bps y/y and AMZN NA EGM revenue growth decelerating 129bps, which reflects the relationship appropriately," the firm substantiated. This, according to the firm, points to North American EGM growth of 24 percent or better.

Mixed Retail Data

Oppenheimer pointed to Commerce Department's retail sales report for the first quarter, which showed an acceleration in auto & gas sales growth to 4.4 percent in the first quarter from 3.8 percent in the fourth quarter. Additionally, non-store retailers continued to take share from department stores, although at a pace slower than in the fourth quarter, the firm added.

The firm also noted press reports that discussed accelerating store-front closures.

Tax Reforms May Not Help B&M Retailers

Oppenheimer highlighted the fact that tax reforms may not provide B&M retailers with incremental capital to invest in operations/price reductions compared to Amazon, as they do not pay a materially greater amount in taxes relative to size. The firm views the tax reform as challenging in 2017.

The firm also noted rapid growth in Alexa engagement.

As such, the firm said its estimates are unchanged.

Oppenheimer has an Outperform rating and a 12–18-month price target of $970 for the shares of the company.

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