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Is Amazon A Buy After Its First Quarter Earnings?

Analyse360Degree

Analyse360Degree

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Amazon (AMNZ), the online supermarket, came out with its fiscal 2014 first quarter earnings on Thursday and the numbers have a mixed story to tell. While the company delighted its stakeholders with staggering growth in both top-line and bottom-line, its expectations for the next quarter made the company a not so wanted one. So, will it be wise for someone to put money in Amazon now? Let’s see.

The quarter and its numbers
At $19.74 billion, up from $16.07 billion of the prior year quarter, Amazon’s revenue surged 23%, surpassing analyst estimate of $19.4 billion. Even the bottom-line of the company was looking pretty strong at $108 million, translating into an EPS of $0.23. The net income of the company jumped 32%, up from prior year’s $82 million. But, this was in line with what the Wall Street was expecting from the e-commerce giant. Initially analysts and industry experts were expecting Amazon will deliver an EPS of $0.54, but after taking into account the previous quarter’s performance, they trimmed down their expectations.

Even the next quarter may turn out to be a disappointment for the investors, though Amazon might sport YoY revenue growth between 15% and 26%. The company through its guidance clearly mentioned that it will run into a red bottom-line that may range between $55 million and $455 million, primarily because of stock-based compensation payments to its employees and other costs. After the company came out with its earnings, the stock price surged.

However, since then the stock has lost some value, probably because investors started factoring in the guidance for the next quarter. Analysts are a little worried for the company since the expected loss is not a small figure. Rather, the guidance itself had triggered much concern and many are thinking whether to invest in the stock or not. Before we can really take a call on that we should also take a look at what else is going on.

What else is going on?
The recently concluded quarter was a big one for Amazon as it witnessed the launch of Fire TV and added HBO entertainment contents to its offering. However, huge challenges are ahead for Amazon since the company will have to battle with market leaders like Netflix (NFLX) and Apple (AAPL). Maybe its deal with HBO will work in its favor. But the point to be notes is, Fire TV users will not have access to some of the premium channels and favorite shows.

Even in the cloud computing space the company is observing severe competition as it stands up against other biggies of the industry such as Google (GOOG), Apple, Microsoft (MSFT) and IBM (IBM). But, the motivating point is that the business segment is growing rapidly and the management has huge expectations from it.

Again, the company is working rigorously to launch its first 3-D smartphone. There are huge expectations from the company since this will be the first of its kind. Previously, the company made history when it launched the Kindle tablet and may be this time also it will taste sweet success. Industry experts are of the opinion that this device from Amazon may pose as a huge threat to players such as Samsung (SSNLF), Sony (SNE), HTC, Lenovo (LNVGY) and many others and has huge potential.

Departing Thoughts
With big sales number but small profit figure, Amazon may have been able to impress the investors, but its expectations for the next quarter have already started acting as a huge negative. Now the only thing that can keep Amazon floating is a strong product line; something that Amazon seems to have. The company should focus more and more on its upcoming as well as recently launched devices and try and make them as popular as possible. Previously also the company has pulled this off successfully and now also it should be able to deliver the same.

Unless you want to play in the short-term, I would suggest you shouldn’t write-off Amazon from your books. The company has huge upside potential and a loss in one quarter, that too because of one-time expenses, should not make you lose interest in the stock. In all probability Amazon will bounce back in the third and fourth quarter and deliver very impressive numbers for the year also. Basing my opinion on all that’s going on inside Amazon, I would say Amazon is still a buy.


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Comments

Dr. Paul Price
Dr. Paul Price premium member - 3 months ago

What is AMZN worth and how did you arrive at that number?

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