Amazon's (NASDAQ:AMZN) Q3 beat consensus estimates, but the weak guide appears to have led to a 7% crack in post-market trading.
On the retail side
International could see weakness in Q4 due to the Diwali festival shopping in India this time around is spread between Q3 and Q4 versus only Q4 last year. In Japan there has been an increase in consumption tax from 8% to 10%. U.S. retail business could also feel the pinch of competition in a relatively shorter holiday season. The management noted that excluding of Whole Foods, from Q3 to Q4 there is a sequential drop of 300 bps in growth The management believes that its one day shipping program has been able to do a good job in pushing up unit growth. However, Q4 is likely to see another $1.5 billion of incremental investment to support the associated logistics, which going forward may come down as route density improves. Advertising saw an over 45% growth versus over 37% last quarter.
On the Amazon Web Services (AWS) side
Benefits of investments made in 2017 in AWS capacity look to be over and newer infrastructure investments to cater demand are likely to pressure margins. Interestingly, the management noted that they will be invested a lot more on the S&M side to handle a wider set of customers. The Amazon management was very focused on highlighting how much investments in sales they are making especially to attract and retain large enterprise customers. Considering AWS is now targeting the large on-premise customers, AWS is increasingly facing off Oracle's (NYSE:ORCL) Gen 2 and Azure. We think that while AWS' economics of scale has allowed the company to reduce prices in the past, the architectural shift that Oracle has brought about has been causing unseen issues.
Below are key drivers of Amazon's value that present opportunities for upside or downside to the current Trefis price estimate for Amazon:
For additional details, select a driver above or select a division from the interactive Trefis split for Amazon at the top of the page.
Amazon is an online retailer which sells electronics, books, retail consumer goods, music, games, apparel and other merchandise to consumers in the U.S., Canada, the United Kingdom, Germany, Brazil, France, China, Japan, India Mexico, Netherlands, Italy and other countries. The company also provides web services such as cloud computing and online storage to web sites and web developers.
Amazon Web Services business is the most valuable segment for Amazon due to the company's high growth within this segment. In recent years, consolidated AWS revenues have grown at high double digits. Despite the lowest revenue contribution, AWS is the most valuable segment due to high margins of cloud computing as compared to e-commerce retail business which operates on razor thin margins.
The growth in Amazon's Web Services has become a critical factor driving the company's expansion globally. Several companies continued to adopt these services in recent years. Besides helping big businesses, the company’s cost efficient web services are also useful for young start-ups that may have cash restrictions.
The growth in the AWS segment has been massive - the annual growth in AWS revenues came in at 70% in 2015, 55% in 2016, 43% in 2017 and 46% in 2018. Apart from this, the company also showed strong profitability in the cloud-services business as margins have improved in this segment in successive years.
Prime subscriptions grew by 53% and 51% year-over-year in 2014 and 2015, respectively, with stronger growth across international markets than within the U.S. Amazon's total Prime members (not reported by the company) was estimated to be 50 million in 2015, which increased to 65-70 million in 2016 and subsequently to over 100 million by the end of 2018. The subscription offers free shipping along with access to video content. This implies that streaming content is just positioned as one of the key features of the service to attract subscribers. Amazon offers other integrated product and services offerings through Prime membership such as Echo, Amazon’s Fire TV Stick, and Amazon Basic Cables.
While the revenues earned from the Prime service subscriptions account for a small chunk of the company’s total sales, the margins from Prime customers are much higher than other customers. Additionally, according to various reports, Prime customers tend to buy almost twice as much as the regular customers. We believe Prime subscribers will continue to grow rapidly as Amazon is investing heavily in streaming content to lure in more buyers.
The global e-commerce market is growing rapidly as consumers continue to shift to Internet for their purchases. Much of this is being driven by growing Internet penetration, increasing adoption of Internet enabled devices such as tablets, notebooks and smartphones, and the continuing improvement in online payment systems. The global online retail market was valued at roughly $1.9 trillion in 2015 and $2.3 trillion in 2016, and is expected to grow to over $4 trillion by the end of the decade.
Amazon is making significant investments to expand its presence in regions such as China, India, Italy and Spain. While these investments will enhance revenue growth, however, this strategy could also raise margin pressure. Amazon will invest a couple of billion dollars on its Indian operations, but since the country’s e-commerce market is highly competitive, we believe it will be difficult for Amazon to attain profitability in the region for at least a couple of years.
Amazon (NASDAQ:AMZN) makes money through its consumer ventures (online and offline retail sales, search advertising, content streaming etc) and cloud services (rental of compute, storage etc) and competes with industry leaders in the retail as well as technology industry including Walmart, Facebook, Google, Microsoft, IBM, eBay and Oracle. ...More
For the last 15 quarters, Amazon's retail revenue growth has averaged 26.3% versus eBay's 6.5% (on a year-on-year basis). However, the last four quarters have seen significant weakness with Amazon's retail revenue growth averaging 17.8% versus eBay's 2.6%. ...More
Per Trefis analysis, a merger of Amazon (NASDAQ:AMZN) and Oracle (NYSE:ORCL) could unlock significant value. While the idea may sound very ambitious, in order to keep itself at the top of the cloud technology food-chain, Oracle may be the best acquisition Amazon could ever make. ...More
Ride-hailing major Uber (NYSE:UBER) indicated that it wants to be the "Amazon of transportation," targeting a wide range of transportation services. In this analysis, we take a look at how Uber's financials and losses compared with Amazon's in its early years. ...More
Shopify - an e-commerce platform that allows businesses to create and run online stores - has seen its stock soar by close to 10x since its 2015 IPO. The company has two revenue streams - namely Subscriptions (which gives users access to its e-commerce platform and tools) and Merchant Services (wh... ...More
Amazon (NASDAQ:AMZN) is scheduled to report its Q2 on July 25. The company's Q1 had come ahead of consensus expectations on revenue (+17% y-o-y) and EPS (+$2.44 per share). ...More
Shopify (NYSE:SHOP) - an e-commerce platform that allows businesses to create and run online stores - has seen its stock soar by close to 10x since its 2015 IPO. ...More
Amazon's (NASDAQ:AMZN) advertising revenue growth over recent years, while logical, has come as a surprise to most. After all, Amazon is one of the world's largest retailers, and its retail business has been dominated by its e-commerce site, where GMVs have consistently risen. ...More
The U.S. advertising market has seen a marked shift in dynamics over the last decade due to the rise of digital advertising. In terms of component growth, non-digital revenues are expected to decline due to budget shifts towards digital. ...More
Google, Facebook, and Amazon are some of the largest and most successful companies in the tech world. In 2018, Google, Facebook and Amazon posted total revenues of $137 billion, $56 billion and $233 billion respectively. ...More
Amazon (NASDAQ:AMZN) reported its Q1 on April 25. The company beat consensus expectations on revenue (+17% y-o-y) and EPS (+$2.44 per share). Below are some highlights from the earnings announcement and call: Management's announcement of moving the two-day delivery to same day delivery for Prime members, leveraging Amazon’s 20 plus years of experience in logistics. ...More
Amazon (NASDAQ:AMZN) is scheduled to report its Q1 earnings on April 25. The company’s Q4 results beat consensus expectations, despite issues in Indian operations and accounting changes due to Whole Foods. We expect the company to see sustained growth across segments this time around. ...More
Amazon (NASDAQ:AMZN) breaks out its business into three segments: North America: This segment generates revenue from retail sales of consumer products and subscriptions booked through North American stores. ...More
Amazon (NASDAQ:AMZN) saw strong y-o-y revenue growth in its fourth quarter, and also expanded its margins in North America, which resulted in strong cash flows. The company's Q4 TTM free cash flow of $19.4 billion was up +134% y-o-y. ...More
Amazon's (NASDAQ:AMZN) reported its Q4 earnings on January 31. In addition to beating consensus estimates on revenue and EPS, the company more than doubled its trailing twelve months free cash flow. Amazon’s total revenue grew to $72. ...More
Amazon's (NASDAQ:AMZN) Q4 earnings release on January 31 will be eagerly watched to understand the company’s standing in international markets, as well as the performance in the cloud market in the context of claims made by Oracle. We expect Amazon to continue growing profitable across all segments, except the International business due to competitive pressures. ...More
Amazon's (NASDAQ:AMZN) retail and cloud businesses have long had an interesting dichotomy, with the retail business historically burning cash and Amazon Web Services (AWS) generating solid profits. ...More
Amazon (NASDAQ:AMZN) has evolved over the years from an online bookseller to a powerhouse that has the potential the disrupt any business landscape it enters. In recent years, Amazon has become a massive distribution platform and a dominant cloud services provider. ...More
Payments processor Stripe recently raised a round of financing that valued the company at around $20 billion, a significant jump from its $9 billion valuation in 2016. ...More
Amazon (NASDAQ:AMZN) announced its third quarter results on October 25, reporting a sustained high double digit (39%) year-over-year increase in net revenues to just under $56.6 billion. ...More