Evercore Partners Lifts PT on Amazon (AMZN) to $330 on Margin Improvement

January 30, 2013 7:09 AM EST
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Evercore Partners analyst Ken Sena raised its price target on Overweight-rated Amazon.com (NASDAQ: AMZN) from $290 to $330 following Q4 results, which missed on revenues although margins accelerated.

The firm notes gross profit dollar growth of 42.5% (vs. 38% estimated) and 37% in the prior year. On this, the analyst comments, "we find the favorable mix shift towards higher gross margin businesses (e.g., 3P and Other/AWS) to be well underway."

On the revenue, the firm notes revenues increased 22% y/y, 600 bps below the 28% we had been anticipating. Given this, Sena is reducing 2013 revenue estimate 6% to $75 billion. They are also lowering long-term revenue growth estimate by 500bps on average to the low 20s y/y vs. high 20s previously. "We reiterate that this revenue reduction is estimated to come from Amazon's lower gross margin 1P retail revenues, thereby minimizing the impact to gross profitability," the analystcomments.

Sena notes gross margin improvement to outweigh revenue deceleration. "To arrive at this conclusion, we breakdown the gross profit contribution historically among 1P retail revenues (booked gross of COGS), 3P retail revenues (booked net), and Other/AWS revenues where expenses also fall below the gross profit line. What we found is that faster steady growth from 3P unit sales and Other/AWS is likely to driver higher blended gross margins (i.e., 30%+ in three years), even assuming no future gross margin expansion within Amazon's 1P retail business. Therefore, even on lower 1Q13 and 2013 estimates and lower revenue estimates over the near and long-term, we are modeling higher overall gross profit dollar growth."

For an analyst ratings summary and ratings history on Amazon.com click here. For more ratings news on Amazon.com click here.

Shares of Amazon.com closed at $260.35 yesterday.

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