Amazon Earnings: 100 Million Members Could be the Company’s Prime Number
When Amazon.com Inc.’s Chief Executive Jeff Bezos announced last week that the company’s Prime membership had reached 100 million, many were excited to hear the number, though it was roughly what had been expected.
“Amazon’s disclosure… globally reflects the power of the program, and validates the continuing substantial investments on various fronts to both attract and maintain this important core base,” said Charlie O’Shea, Moody’s lead retail analyst, in a statement.
“The number makes a lot of sense,” he added in a discussion with MarketWatch.
But the figure has also got some thinking that Prime membership growth is approaching a ceiling, and analysts will scour Thursday’s first-quarter earnings for evidence that would prove that thesis.
“Amazon’s growth has been breathtaking and impressive, but there is no way they can continue at that scale,” said Pete Killian, partner at Vivaldi, a business consultancy and branding company. “They need to find $25 billion-plus of topline growth every year to maintain their growth rate, and at some point that outstrips the speed of consumers’ behavior change. So the ‘hole’ in the 100 million number is that it’s the victim of its own success: there really is not much higher to go.”
Bezos, in his letter, talked up international expansion in places like India as an avenue for advancement.
Still, Stifel analysts see room for more.
“We believe Amazon continues to sit in a favorable competitive position in the retail landscape and should continue to benefit from strong/accelerating U.S. online sales growth, increasing Prime penetration, faster/more convenient delivery, and the continued shift of dollars from offline to online channels,” analysts led by Scott Devitt wrote in a note.
Analysts see further upside in devices, Amazon Business and advertising. Stifel rates Amazon shares a buy with an $1,800 price target.
Amazon has an average buy rating and an average target price of $1,711.50 among analysts on FactSet.
Here’s what to expect:
Earnings: Amazon is expected to report earnings of $1.24, according to FactSet, down from $1.48 for the same period last year.
Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects per-share earnings of $1.33.
Amazon has beaten FactSet earnings estimates for the last two out of three quarters.
Revenue: FactSet analysts expect revenue of $49.91 billion, up from $35.71 billion the previous year.
Estimize expects revenue of $50.43 billion.
Amazon has exceeded FactSet revenue expectations the last four out of five quarters.
Stock price: Amazon shares are up 10.6% for the past three months, and up nearly 68% for the past year.
The S&P 500 index has gained 13.2% for the last 12 months, and the Dow Jones Industrial Average has added 19% for the period.
-Amazon’s new partnership with Best Buy Co. Inc. is seen as a win-win, but there may be a bit more advantage for one company over the other.
“For Amazon to maintain their breakneck growth rates—both speed and scale of growth—they need to quickly enter physical channels too,” said Vivaldi’s Killian.
Tim Lippa, senior vice president of strategy at PMX Agency, a global marketing firm, also sees the long-term branding benefit for Best Buy.
“Partnering with Amazon gives them a renewed relevancy with customers, both in driving to Amazon and their own e-commerce and retail stores,” he said.
-After first considering the sale and distribution of pharmaceutical drugs, CNBC reported last week the company’s Amazon Business unit has decided against it. However, there’s still the possibility that other parts of the company could push into the category.
-Wedbush analysts led by Michael Pachter think Amazon Video will be a focus even if the $6 billion the company plans to spend is less than the nearly $8.0 billion that Netflix Inc. NFLX, -0.21% said it would invest this year.
“Despite a smaller expected outlay, we continue to be impressed with the quality of many Prime Video buys, including ‘The Lord of the Rings’ series and the ‘Cortés’ miniseries from executive producer Steven Spielberg,” analysts said.
Wedbush rates Amazon shares outperform with a price target of $1,750.
-Amazon Web Services, or AWS, is expected to see another more than $5 billion quarter, after topping that mark for the first time in the previous quarter.
Jefferies analyst Brent Thill, who has a buy rating and a $1,850 price target on Amazon, said AWS, “remains the runaway leader in a vast, and still rapidly growing, cloud infrastructure market by a wide margin.”
Thill believes AWS can cross into $60 billion in annual revenue in five years versus about $20 billion now.
“In our view, Amazon’s dominant position in cloud infrastructure is also likely to eventually lead the company to push further up the stack into the application layer—where we think the market opportunity could be even larger,” Thill said, referring to the $100 billion Software-as-a-Service market.
Piper Jaffray analyst Michael Olson, who has an overweight rating and a $1,650 price target, said AWS is positioned for upside growth in 2018, and that a recent survey of chief information officers showed that 90% are planning to increase spending on cloud service providers.
“We, therefore, believe that as part of an accelerating cloud environment, AWS could see a surprise acceleration in Q1,” Olson said.
Analysts polled by FactSet expect AWS revenue to jump 43% to $5.24 billion from $3.66 billion in the year-ago period.