Amazon (AMZN) Not Entering Another Long Term Investment Cycle - Mizuho

Mizuho Securities analyst, Neil Doshi, thinks that despite profit coming in below expectations, Amazon (NASDAQ: AMZN) is not entering into another long term investment cycle. The profit shortfall comes from higher third-party FBA sales which required an investment in fulfillment but will become higher margin in time.

Revenue of $35.7b was slightly below consensus at $35.9b and CSOI came in at $1.75b, vs. the Street's $1.85b estimate. GAAP EPS of $1.00 was below the Street's $1.58 est.

Revenue mid-point of guide of $27.8b was in-line with the Street's $27.7b est., but CSOI midpoint of $1.0b was below the Street's $1.3b est. Amazon usually exceeds the CSOI high-end guidance

Positives:

1) AWS op. profit and margin of $687m/28.6% was a record high, and accounted for 39% of total Amazon CSOI

2) Gross margin expanded 239 bps YoY to 31.9% (but down QoQ), while CSOI margin of 4.9% was the highest CSOI margin in 5 years

3) Prime membership grew 51% YoY

Concerns:

1) N. Am revenue decel'd to 24% YoY vs. 28% in 3Q, on a 1 point easier comp. Media accel'd to 11% vs. 8% in 3Q, but EGM decel'd to 28% vs. 35% in 3Q

2) Int' revenue also decel'd to 22% YoY FXN vs. 24% in 3Q

3) AWS revenue of $2.4b decel'd considerably to 69% YoY, vs. 78% in 3Q. We expect to see further deceleration in 1Q16 as Amazon dropped EC2 prices by 5% in January

4) Shipping costs as % of revenue ticked up to 5.2% since 4Q11.

No change to Buy rating but the price target drops to $685 from $720.

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 $635.35 yesterday.

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