Amazon Poised To Deliver Robust Q4 2015 Results

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Amazon (NASDAQ:AMZN) is scheduled to report its financial results for the fourth quarter on Thursday, January 28. Notwithstanding the 10% fall in its stock price since the start of this year, Amazon has given investors enough to cheer about in recent quarters with its value up over 90% in the last 12 months. In the upcoming Q4 2015 earnings conference, we expect the company to report solid results driven by both an acceleration in top line growth and an improvement in profitability. Amazon is expected to report around 23% year-over-year (y-o-y) growth in its top line and meet the Reuters’ compiled consensus estimate of $35.98 billion, up from $29.33 billion last year. In terms of bottom line results, Amazon is expected to continue with its robust gains in profitability and report earnings of $1.56 per share, up from 45 cents a share in the prior year quarter.

See our complete analysis for Amazon

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Early Indications Of Same Store Sales Data Looks Strong

Amazon’s growth in same store sales during the months of October, November and December 2015 came in at 16.4%, 22.9% and 15.5% respectively, according to data by ChannelAdvisor. [1]

amznSSS-1This represented above-par performance compared to the broader e-commerce growth rate of 13-14% (per comScore). We believe this growth was driven by both the Prime program as well as strong performance in the electronics and general merchandise (EGM) category.

Expecting Strong Growth In North America, Amazon Web Services

Sales growth in North America accelerated from 24% in Q1 2015 and 26% in Q2 to 28% in Q3 2015. This was driven by a more than 30% y-o-y increase in the electronics and other general merchandise (EGM) category. Based on early indications, we expect Amazon to report strong sales growth in the region during the fourth quarter as well.

We also expect the company to report robust sales growth in Amazon Web Services in the upcoming Q4 results. In the first nine months of 2015, the segment witnessed 70% y-o-y top line growth to $5.47 billion. Owing to the massive market opportunity in the cloud-services business, we believe Amazon will continue to see usage growth of over 50% in this segment over the next few quarters.

Expect Consistent Margin Improvement

While Amazon’s margins disappointed during the first three quarters of 2014, the company’s margin performance over the past four quarters has exceeded expectations. During the last quarterly results, Amazon’s operating margin grew by 420 basis points year over year to 1.6%, spurred by superior margin performance in the North American and Amazon Web Services segments. This improvement came despite the fact that the company continues to spend heavily on its Prime and other growth initiatives, even as it incurs losses in its foreign operations.

We will keep an eye on Amazon’s margins in the fourth quarter; improved sales and margin improvements should help Amazon post strong Q4 and full-year 2015 earnings. The company has already generated operating income of over $2.77 billion in the first nine months of 2015 compared to $1 billion generated in the full year 2014.

Our $604 price estimate for the company’s stock is in line with the current market price.

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Notes:
  1. December 2015 ChannelAdvisor Same Store Sales (SSS) for eBay, Amazon, Google Shopping/PLA, CSE, Search and and Other Third Party Marketplaces, ChannelAdvisor, January 7, 2016 []