Do Amazon's Margins Give It A Moat To Protect Against Decelerating Sales?

On The Quarter

Sebastian quickly pointed out that Amazon's revenue fell short of consensus expectations, although this shouldn't be a complete surprise given mixed holiday data points and foreign exchange woes. In addition, North America electronics and other general merchandise increased 24 percent in the quarter, which marks the slowest level in four years.

However, investors should find some comfort in the fact that Amazon demonstrated improving quarter-over-quarter incremental gross margin which offset significant increases in operating expenses to support ongoing platform initiatives.

A Look Ahead

Looking forward to the full-year 2017, Amazon has plenty of investments in the books, including the opening of new fulfillment centers after opening 26 centers in 2016 compared to just 14 in 2015. In addition, Amazon will expand its data centers and video content.

Sebastian suggested that Amazon will ultimately benefit from these multiple long-term initiative growth opportunities across all of its segments including retail, technology and media.

Bottom line, Amazon's focus remains on improving the customer experience through broad product selection and low prices as creating a meaningful competitive moat. This in turn will ultimately drive operating leverage and continued healthy free cash flow returns.

"With a trillion-dollar market opportunity and accelerating e-commerce tailwinds, we believe shares will continue to trade at a premium to other large-cap Internet companies," the analyst concluded.

At last check, shares of Amazon were down 3.49 percent at $810.60.