Citi Debunks Amazon Bear Case Ahead Of Earnings
Amazon.com, Inc. (NASDAQ: AMZN) is scheduled to report earnings Thursday afternoon. Ahead of that, analysts at Citi – who have a Buy rating and $354 price target on the stock – addressed bear arguments likely to arise following the report.
In Citi’s view, the stock’s 2014 decline was based on operating margins coming in below expectations. Citi thinks that further pressure on margins is already factored into the stock price, and the analysts see potential for the company to guide to the top half of operating income – something that could indicate margin pressure is abating.
Citi analysts also dismiss concerns over foreign exchange, revenue growth and unit growth. On revenue growth, Citi said it is not the right measure to value Amazon. Instead, investors should look at gross profit or retail gross margin value, both of which are expected to grow.
For unit growth, Citi said that average revenue per user is typically lower in the fourth quarter, due to the nature of customers buying low-ticket items as gifts. Additionally, the growth of Amazon’s tablets and e-readers is playing a role since low-ARPU units like digital app downloads are included in that metric.
Shares of Amazon were nearly unchanged at the market open, trading at $303.57.
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