Bernstein Expects Nothin' But Beats From Amazon

Amazon.com, Inc. AMZN reported higher-than-expected gross margins for 15 straight quarters, while delivering a miss in 4Q15. Bernstein’s Carlos Kirjner maintained an Outperform rating for the company, with a price target of $770.

Analyst Carlos Kirjner believes Amazon would be able to beat consensus expectations for 1Q16, 2016 and 2017. He added that the company’s robust performance is likely to be driven by the expected return of IP gross margin expansion, the significant increase in FBA price and strong CSOI guidance.

Performance Drivers For Amazon

Kirjner identified the following factors that would boost Amazon’s performance:

• The forex impact on the company’s revenues is expected to turn from a significant headwind in 2015 to a tailwind. Consequently, Amazon’s 2016 revenues are likely to exceed $135 billion.
• The contraction in the company’s IP gross margins in 4Q15 is likely to end, with margins expected to expand in the coming quarters.
• The FBA price increase enacted as of mid-February corresponds to an average price increase of around 9 percent, and is expected to contribute significantly to gross profits and CSOI. The effect of this increase is not fully reflected in consensus expectations.
• The significant deterioration in fulfillment expenses in 4Q15 is expected to end.

The analyst expects Amazon to post 1Q16 revenues of $29,191 million, of which AWS accounts for $2,581 million, and consolidated EBITDA of $3,279 million. The company’s full-year revenues are estimated at $135,148 million, of which AWS accounts for $12,405 million, and consolidated EBITDA of $15,514 million is expected.