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Wall Street Looks Past Amazon's (AMZN) Large Q3 Loss to an Amazon-Christmas

October 26, 2012 1:41 PM EDT Send to a Friend
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Price: $341.83 --0%

Rating Summary:
    31 Buy, 13 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 12 | Down: 12 | New: 27
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Amazon.com (NASDAQ: AMZN) badly missed Q3 headline numbers after the close Thursday, posting a pretty sizable loss. But to the chagrin of bears, the stock is up nearly $10, or 4.5 percent, as investors focus on the company's strong positioning for the all-important holiday season. After digesting the numbers, Wall Street analysts have weighed in and for the most part they like what they see.

Goldman Sachs Heather Billini - "... we view 3Q12 results as supporting our thesis of CSOI margin upside and that CSOI margins will bottom in 2012 and accelerate in 2013. We are modeling CSOI margins of 2.5% for 2012 and expect these to rise to 3.6% in 2013, driven not only by continued strong sales growth but also operational efficiencies coupled with a fast growing digital media business. At around $220, AMZN trades at 17x our 2013 EBITDA forecast of $5.74bn and 60x our FCF estimate of $1.69bn." Maintain Buy, $280 price target.

Needham Kerry Rise - Mixed 3Q12 results as revenue (FX-neutral) exceeded expectations, but GAAP EPS fell below expectations, posting the first loss in nearly a decade. Guidance fell short of expectations. We believe the low 4Q12 revenue growth guidance presents an upside opportunity particularly given the continued solid customer and unit increases and the strong 3P business. We also expect strong e-commerce trends to benefit Amazon in 4Q12 as more consumers shift online to make their holiday purchases. Operating income guidance was below expectations as investments continue to push profitability lower. Maintains Hold

Canaccord Genuity Michael Graham - "Amazon reported Q3 results last night that, excluding the negative impact of FX fluctuations, would have been in line with our expectation and slightly above consensus estimate. Guidance was slightly below consensus on the top line, while continuing to point to ~1% operating margin. We believe these results affirm our thesis that Amazon is a massive long-term winner with a stock that should be range-bound until we near the end of the current investment cycle." Maintain Hold, $230 price target.

Wells Fargo Matt Nemer - "Amazon reported a decent quarter as underlying strength in key customer metrics and growth in North America profits offset continued pressure from investments and the first quarterly loss in the international segment in over 10 years. Net-net, we view Q3 as largely in line with recent quarters, but we appreciate that some investors may be losing patience given there is likely no end to massive investment spending in sight. That said, we still believe Amazon is the most innovative company in retail, which we believe will lead to significant market share gains over time. Our estimate changes are as follows: Q4 GAAP operating income goes from $155MM to $200MM, GAAP EPS goes from $0.26 to $0.33 and non-GAAP EPS goes from $0.69 to $0.83. For FY2012, GAAP operating income goes from $424MM to $471MM, FCF goes from $1.56B to - $1.44B (largely related to the company's purchase of its headquarters buildings), GAAP EPS goes from $0.57 to $0.04 and non-GAAP EPS goes from $1.80 to $1.22. For FY2013 GAAP operating income goes from $504MM to $460MM, FCF goes from $2.78B to $2.5B. GAAP EPS goes from $0.95 to $0.71 and non-GAAP EPS goes from $2.96 to $2.76." Maintains Outperform, $221-250 valuation range.

Nomura Brian Nowak - "3Q review. Amazon reported 3Q:12 revenue of $13.8bn, 2% below us ($14.1bn) and 1% below the Street ($13.9bn). The miss vs. us was driven by N. American EGM, which grew 39% (vs. us at 50%), driven by increasingly difficult absolute dollar compares and the growing mix of 3P in N. American EGM. AMZN’s new fulfillment footprint continues driving shipping cost efficiencies and gross margin expansion (+180bp YoY vs. us at +146bp). But “fulfillment expense” savings are taking longer to come through in AMZN’s results. We attribute this to the scale of AMZN’s DC build (13 in 2010, 17 in 2011, and 19 in 2012) and the time it takes for AMZN to iron out inefficiencies in the new DCs. We remain above the Street’s CSOI by 2% in 2013 and are still attracted to the long-term AMZN share-gaining story and margin expansion story. F12E/F13E EPS from $0.56/$1.96 to $0.03/$1.92." Maintain Buy, $285 target

Opennheimer Jason Helfstein - "We believe the AMZN story remains on track, with meaningful share gains through strong customer growth and steady increases in share of wallet. While headlines focus on revenues, the shift to 3P suggests the proper focus is on gross profit, which was 6% above our estimate, up 37% y/y or 700bps faster than revenue growth. Operating income was 22% above consensus. 4Q guidance was in line with our estimates, but below the Street. Given the minimal decline after-hours, we believe investors were comfortable with guidance, given the company's history of dramatically exceeding OI guidance. Raising 2013 SOI estimate by 16%, reflecting 2.4% margins on shift to 3P & AWS. Maintains Outperform rating, price target from $260 to $264.

Evercore Partners Ken Sena - "Three data points in quarter support positive L/T view , including 39% retail unit growth, suggesting that user engagement with the platform is outpacing revenues, 41% of retail units are now third-party where margin contribution is higher, and 88 of the 89 fulfillment centers slated for completion this year are indeed complete, with the remaining FC apparently weeks away, which we believe bodes well for future investment spending." Maintains Overweight, $250 price target.

BGC Colin Gillis- "Amazon reported September quarter revenue of $13.8B below our estimate of $13.9B and consensus estimate of $13.9B which accounted for 26.9% YoY growth and 7.6% sequential growth. GAAP diluted loss per share of $0.60 was below our estimate of a loss of $0.04 and compares to consensus estimate of a loss of $0.08. While the loss was increased due to investment write downs, we note that the company also lost money at the operating income level, a disturbing trend after years of profitability. Operating loss of $28 million compares to operating income of $79M in the third quarter of 2011." Maintain Hold, $220 price target.

Baird Colin Sebastian- "Q3 results were essentially in-line (revenues slightly below and operating margins comfortably ahead of consensus). Notably, signs of leverage and a reversal in key expense trends (net shipping costs and fulfillment) are surfacing despite further declines in International margins due to continued aggressive expansion. Overall, we view the Q4 outlook as likely conservative. Key trends remain intact and we retain our Outperform rating" Maintains Outperform, $300 price target.

Topeka Capital Victor Anthony - "Amazon's 3Q report fell shy of the TCM/consensus revenue estimate, and as well, the Company provided 4Q revenue guidance that was below expectations, likely due to macro pressures in Europe. However, we remain buyers of the shares as the fundamentals of the model continue to firm, that is, YoY gross margins continue to improve, and there are signs that we are likely to soon see leverage on expenses, culminating towards a margin inflection point in 2013. Investors should use weakness in the shares to add to existing positions." Maintain Buy, target down from $400 to $350.

Cantor Fitzgerald - "3Q:12 was a repeat of 2Q:12, with softer than anticipated revenues, but gross and operating margins slightly ahead of estimates. The net income loss was exacerbated by an impairment charge and a tax adjustment, normalizing for which, EPS would have come in ahead of the ($0.07) consensus. While falling short of the high end of its own revenue guidance, Amazon continues to grow at more than twice the rate of e-commerce and gain share worldwide. The nagging and obvious question of when will the current investment cycle end allowing financial leverage in the model to emerge is not one management seems to be in any hurry to answer. That said, given Amazon's focus on great customer experience, great prices and great execution, we believe that it's uniquely positioned to thrive in this vast and growing market." Maintain Buy, $285 price target.

Benchmark Daniel Kurnos - "Amazon.com (AMZN-Buy, PT $260) reported 3Q12 revenue growth of 27% to $13.81 billion, just shy of consensus at $13.92 billion, primarily reflecting a greater than expected impact from FX. Ongoing strength in third-party (3P) sales helped drive an 180bp y/y increase in gross margins, leading to OIBDA of $743 million, up 48% y/y, but short of our $804 million estimate. Operating income was a loss of $28 million, below consensus due to the revenue shortfall and a $70 million sequential jump in D&A expense. EPS was a loss of $0.60, but included a negative $0.37 impact reflecting a write-down of the value of Living Social. The high-end of Q4 guidance came in close to consensus, but we expect some downside due to increased competition and further macro headwinds may have already been anticipated." Maintain Buy, $260 price target.

Deutsche Bank Ross Sandler - " Amazon reported gross profit and pro-forma operating income 2% and 47% above our estimates, and guided 4Q operating income in line with our estimate. Gross profit growth ex-fx was 40% Y/Y, down from 43% in 2Q, and continues to benefit from faster 3-P unit growth. More importantly, Amazon’s operations are becoming more efficient in both shipping and fulfillment, which showed leverage for the first time since 1Q10 (as a % of GP). We are increasing our 2013 gross profit and operating profit by 2% and 16%." Maintains Buy, $305 price target.




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Deutsche Bank, Cantor Fitzgerald, Robert W Baird, Needham & Company, Nomura, Wells Fargo, Canaccord Genuity

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