The e-commerce giant, Amazon, announced last week its financial results for the fourth quarter and, although exceeding expectations, saw its shares collapse under the effect of a warning about the increase in investments this year. Shares fell more than 5% after the company’s publication. Amazon’s holiday quarter generated a profit of $ 6.04 per share while analysts expected $ 5.68 per share. Revenues, at $ 72.4 billion, were also higher than the $ 71.9 billion expected by analysts according to Refinitiv. Annual revenues also reached $ 232.9 billion last year, the first time Amazon has seen annual revenues exceed $ 200 billion.
The company’s CFO, Brian Olsavsky, said in the call for results that spending would likely increase in 2019, that he would expect investments to increase compared to 2018. Olsavksy added that Amazon was pleased with the growth in the quarter, and believe the fourth quarter was particularly good for customers, the retail sector was very strong, the teams there at AWS had maintained a very high growth rate while continuing to meet the expectations of its customers and they had an excellent conference reinvented during the quarter. He also said that they were pleased with the growth of the quarter and the total income.
Credit Suisse, which earlier gave the outperform label to the stocks, said that for the 2019 and 4Q18 results, they expected the following to be the focus of concern – the potential stabilization of growth in unit volume and turnover in 4Q18 due to the increase in free delivery subsidies paid during the holidays, as well as for 2019 at the Amazon exit, a period of more difficult comparisons due a decrease in the minimum number of free deliveries; lower vendor recommendations and higher BAF costs; higher USPS fees; minimum wage increases, and more moderate change in the 1P combination or 3P.
Adding up these factors, they said they believe that Amazon will post better-than-expected unit and revenue growth throughout 2019, offset by a slowdown in growth dollar benefits additional items of expenditure, although it is different in relation to the disproportionate operating profit higher than that posted by the company in the first quarter of 1998, they expected investors to receive a more moderate deceleration trajectory and thus kept its Outperform rating on AMZN shares. This is based on the following long-term factors – expansion of the operating margin of the e-commerce segment as Amazon expands its infrastructure, their ability to grow faster than expected free cash flow relative to its advertising segment, and an upward bias in AWS’s revenue forecast and a likely more moderate deceleration trajectory, as suggested by the current capital intensity in the company.
JP Morgan’s Earlier Optimism
JPMorgan, which also has an “overweight” rating on Amazon stocks, said that they expect solid sales of $ 72.1 billion for the fourth quarter (+ 20.1% FXN Y / Y), and if the upside potential is limited given Europe’s well-discussed retail weakness, AMZN should take advantage of its free delivery offer for the US and the UK holidays, and its potential earnings gains in the toys market. They also expect an estimated operating profit of $ 3.6 billion from operating earnings under GAAP 4, with investor expectations likely to be over $ 4 billion, and believe in AMZN. They recognize that the timing and composition dynamics are multiple and that the accounting changes could be a modest brake to the typical AMZN re-acceleration while believing that the expectations of 1Q’s benefits are reasonable. Estimate of $ 3.25 billion slightly above consensus of $ 3.0 billion. With these remarkable estimations of Amazon’s shares, there is clearly a lot of optimism from industry experts and analysts that the stage is set for Amazon, to remain the e-commerce superpower that it is, and holds its position. What remains, is to observe the performance of its shares over the coming months.