Amazon's Q1 Results May Be Indicating A Return To Momentum

Q1 Print

Analyst Daniel Kurnos noted that the company reported better-than-expected first-quarter operating income and revenues. The analyst said he suspects North American Electronic Goods and Merchandise, or EGM, was the primary driver for the upside. This being the company's largest category, the analyst said, it bodes well for the long-term sustainability of revenue growth.

Enhanced Offerings Bore Fruit

While noting that Amazon did experience segment margin compression in the first quarter in the wake of increased investment, Benchmark said the enhanced offerings bore immediate fruit in the form of a $250 million revenue beat. According to the firm, some negative mix also contributed to the lower margins via device sales.

"We continue to believe Amazon is winning the battle for the living room and note that Alexa now has over 12,000 skills, highlighting a growing, robust developer community," the firm added.

Raising Estimates

Citing the first quarter upside and apparent sales momentum, Benchmark raised its 2017 revenue estimate by $1 billion to $167.1 million, representing 23 percent year-over-year. The firm thinks its forecast of 17 percent growth in international revenue may prove conservative as the company builds out its offering overseas and remains aggressive in developing capabilities in the APAC region.

However, the firm acknowledged the regional challenges are likely to result in a more prolonged ramp period. The firm also raised its EBITDA forecast by $300 million to $19.9 billion, representing 30 percent growth.

Top Long-Term Names

"With several initiatives still in the early stages, we continue to recommend Amazon as one of our top long-term names," the firm said.

Benchmark maintains its Buy rating on the shares of Amazon, while it lifted its price target to $1,150 from $925.

Amazon shares were up 3.12 percent at $947 in pre-market trading.

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