The Sell-Side's Takeaways From Amazon's Investor Letter

E-commerce giant Amazon.com, Inc. AMZN's annual shareholder letter focused mostly on its large size, scale and multiple initiatives ahead that could result in "multibillion-dollar failures."

RBC's 5 Takeaways

The five main takeaways from the letter penned by CEO Jeff Bezos are as follows, RBC Capital Markets' Mark Mahaney said in a Thursday note: 

• Third-party gross merchandise sales accounted for 58 percent of total GMS and demonstrate a successful strategy of diversifying the business. Successful initiatives including Fulfillment by Amazon and Prime helped the company grow its marketplace platform at twice the rate of eBay Inc EBAY from 1999 through 2018.
• The creation of the AWS cloud business was a result of Amazon's "intuition, experimentation and reiteration of a product" that "no one asked for." AWS was essentially created "from nothing" and should be considered one of the most impressive, important technology creations in recent memory.
• Ten percent of total retail sales are conducted online, and Amazon is only now showing signs of disrupting the other 90 percent of offline sales. The company is doing so by changing the way offline shopping is conducted by introducing stores with no checkout lines.
• Amazon's commentary that it could lose billions of dollars in failed initiatives "should not be new information."
• Amazon continues to focus on building an entire ecosystem in-home and out-of-home to better satisfy customer needs regardless of where they are.

Mahaney maintains an Outperform rating on Amazon with an unchanged $2,300 price target.

Loop Capital's 3 Takeaways

Loop Capital Markets' Anthony Chukumba highlighted three takeaways in a research report.

Similar to Mahaney, Chukumba discussed Amazon's growth in third-party GMS.

• Amazon offers its partners the necessary tools to succeed, including managing inventory, payment processing, shipment tracking and facilitating cross-border transactions, the analyst said. The company's third-party business generates superior profit margins and returns and minimizes Amazon's first-party inventory risk, he said. 
• Second, Amazon's letter includes two paragraphs discussing its cashierless stores, which is notable given the technology is used in just 10 locations, Chukumba said. The cumulative volume of the stores is "not even a rounding error of a rounding error" to total sales, but foreshadows it will be used in larger stores over time, he said. 
• Third, Amazon is led with a culture of encouraging workers to not only experiment on new products but to "embrace failure," the analyst said. This has resulted in Amazon earning a reputation of driving consistent innovation for decades.

Chukumba maintains a Buy rating on Amazon's stock with an unchanged $2,200 price target.

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