3 Key Themes To Watch In Amazon

Amazon.com, Inc. AMZN is scheduled to report its first-quarter results after Thursday's market close and now isn't the time for investors to be aggressive on the stock, according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Edward Yruma maintains a Sector Weight rating on Amazon with no assigned price target.

The Thesis

There are three key themes dominating Amazon's stock, Yruma said in a research report.

1. 2018 could likely prove to be an investment year for Amazon's Whole Foods business, as evidenced by the recent launch of a free two-hour delivery service in seven major cities.
2. Amazon's cloud business, AWS, remains the largest IaaS/PaaS platform with a $20 billion revenue run rate, which Yruma said can double to $41 billion by the end of the decade. The company appears to be dedicated towards the business' growth as evidenced by an upward inflection in AWS job postings in the first quarter.
3. Amazon could show a 57 percent increase in fulfillment costs. In fact, public scrutiny on its relationship with the U.S. Postal Service will likely lead to incremental investments in Amazon Flex in the near and medium-term.

While Amazon is likely to continue taking market share over time, the stock is trading at a "full" valuation at 3.3 times 2018E EV/sales which is a premium to the e-commerce peer-group average of 2.9 times.

Price Action

Shares of Amazon were trading around $1,450 on Tuesday afternoon.

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