360° Coverage : Amazon Falls on High Spending, But Topline Growth Remains Strong

2 Updates

Amazon Falls on High Spending, But Topline Growth Remains Strong

Apr 29 2014, 8:04am CDT | by

Amazon recently released its Q1 2014 earnings and based on the disclosed financials, we have updated our price estimate to $341. Our current price estimate implies more than 10% premium to the...

Filed under: news

 
 
 

17 weeks ago

Amazon Falls on High Spending, But Topline Growth Remains Strong

Apr 29 2014, 8:04am CDT | by

Amazon recently released its Q1 2014 earnings and based on the disclosed financials, we have updated our price estimate to $341. Our current price estimate implies more than 10% premium to the market price. While the revenue growth remained strong, the expenses increased which resulted in the stock plummeting by almost 10%. Amazon’s shares have fallen by roughly 25% since the beginning of the year but much of it can be attributed to broader market correction. The company’s fundamentals remain strong as it continues to increase its presence in the global e-commerce market. Additionally, its web business and Amazon Prime service continue to be key growth drivers and differentiators, and are going to be increasingly valuable going forward. Here is what you should know about Amazon’s first quarter earnings.

See our complete analysis for Amazon

General Merchandise Growth Was Stellar But Media Segment Remained Slow
/>

Amazon saw its revenues jump by 23% in Q1 2014, which was closer to the high end of its guidance. This has been the pattern for the last few quarters as the company continues to leverage its size, strong vendor network and technological advantage to expand its presence both in the U.S. and international markets. However, the stock still fell almost 10% following the earnings announcement due to higher spending that could weigh on the retailer’s margins in the near term. Improvement in EBITDA margin in the last two years is something that has fueled positive investor sentiment. Amazon’s EBITDA margin is very low, which implies that the stock is extremely sensitive to any change in its value. The stock’s history suggests that the market has placed a high premium on revenue growth while ignoring the company’s profitability. However, that may not continue to be the case as the business matures. Sooner or later, Amazon will need make strategic decisions to improve its profit margin.


/>

We have previously stated that while Amazon’s domestic business is doing well, the company could do better internationally. As it turned out, the international operations picked up this quarter except for the media segment. While the electronics and general merchandise business is growing at a rate of more than 25%, media segment’s growth hasn’t been exactly stellar. Amazon’s media sales in the U.S. increased by a little more than 12%, whereas the figure for international markets stood below 5%. Even though there is a clear shift to digital products in media segment, the lack of local content continues to be the major hindrance. This issue, while fixable, will take sometime to resolve.

Amazon Prime Service And Cloud Business Will Be More Valuable Going Forward
/>

Amazon mentioned that its prime service continued to add new subscribers for trials despite the recently announced price hike which indicates low price elasticity and therefore, more room for price increases. This holds true for Amazon’s core business, too, as many of the studies conducted by the company show that the price elasticity for its products is low. Despite this, it hasn’t resorted to price increases across its general merchandise and media segments. Amazon Prime service is getting a boost from improved streaming content and the benefits of free shipping attract frequent buyers. The service has complimented the retailer’s core business well and will continue to be one of the key differentiators going forward. The value of this differentiation will only widen as Amazon expands globally.

Amazon’s ‘Other’ segment revenues jumped by 58%. Most of the sales from this reported segment can be attributed to Amazon’s web services. The company’s web services enable cloud storage and computing for corporates and small businesses, thus creating an infrastructure to drive more data on the Internet. This fits into Amazon’s intent of enabling the online shift of businesses and consumers, which will help it further its interests. Additionally, the web services business is hugely profitable and the company can invest the profit from this segment to expand its core retailing business. To Amazon’s delight, it is ahead of other competitors in the race to become one of the biggest cloud services providers in the world. The company has frequently reduced its prices in order to bag deals. As a large chunk of corporates are expected to change their technology vendors over the course of next few years, Amazon has a distinct competitive advantage to leverage this development. Some analysts have estimated Amazon Web Services to be $5 billion a year business with gross margins north of 90%.
/>
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
/>

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.

 
Update
2

2 days ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new co ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

3 days ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies o ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Man with 'disconnected' brain, alive and kicking at 88!
New York, Sep 1 (IANS) This may sound and read unbelievable but there is an elderly man whose brain has no neural fibre connection between his two hemispheres!
 
 
Ebola toll in Guinea 460
Conakry, Sep 1 (IANS) At least 690 Ebola virus disease cases have been confirmed in Guinea, out of which 460 people have died, the latest data released by the health ministry here shows.
 
 
Caffeinated 'energy' drinks bad for heart
London, Sep 1 (IANS) "Energy" drinks which are so popular during physical exercise and even otherwise among children and younger adults can cause heart problems, a research shows.
 
 
Nepal too to restructure national plan panel
Kathmandu, Sep 1 (IANS) After the new Indian government decided to scrap the Planning Commission, the Nepal government also has decided to restructure, revamp and modernise its National Planning Commission (NPC), which is styled on the Indian planning panel.
 
 
 

Latest from the Network

Man with 'disconnected' brain, alive and kicking at 88!
New York, Sep 1 (IANS) This may sound and read unbelievable but there is an elderly man whose brain has no neural fibre connection between his two hemispheres! For a layman, human brain is divided into two hemispheres...
Read more on Apple Balla
 
Ebola toll in Guinea 460
Conakry, Sep 1 (IANS) At least 690 Ebola virus disease cases have been confirmed in Guinea, out of which 460 people have died, the latest data released by the health ministry here shows. A total of 143 patients were...
Read more on Business Balla
 
Southern African Development Community discusses Lesotho coup attempt
Pretoria, Sep 1 (IANS) The Southern African Development Community (SADC) Monday continued its meeting here on the attempted coup by Lesotho's military. Present at the meeting were SADC Chairman and South African...
Read more on Politics Balla
 
Iraqi forces recapture key town
Baghdad, Sep 1 (IANS) Iraqi security forces Monday recaptured the town of Sulaiman Beg in Salahudin province after more than two months of being under siege by the Islamic State (IS) Sunni extremist organisation, an...
Read more on Politics Balla
 
Caffeinated 'energy' drinks bad for heart
London, Sep 1 (IANS) "Energy" drinks which are so popular during physical exercise and even otherwise among children and younger adults can cause heart problems, a research shows. "People sometimes consume a number of...
Read more on Celebrity Balla
 
Nepal too to restructure national plan panel
Kathmandu, Sep 1 (IANS) After the new Indian government decided to scrap the Planning Commission, the Nepal government also has decided to restructure, revamp and modernise its National Planning Commission (NPC), which...
Read more on Business Balla
 
Women at greater stroke risk from resistant hyper-tension
London, Sep 1 (IANS) The condition known as Resistant Hyper-tension increases stroke risk by 35 percent in women and 20 percent in elderly patients, according to new research. "Patients with hyper-tension that does...
Read more on Apple Balla
 
Indian-origin inventor of 'email' slams critics
Washington, Sep 1 (IANS) V.A. Shiva Ayyadurai, an Indian-origin scientist who received official recognition as the inventor of the computer program for electronic mail system or "email" from the US government 32 years...
Read more on Politics Balla
 
Miley Cyrus still loves Liam Hemsworth
Los Angeles, Sep 1 (IANS) Singer Miley Cyrus says she still has strong feelings for her ex-fiance Liam Hemsworth, with whom she parted ways last year. The 21-year-old split from the actor in September 2013 following...
Read more on Celebrity Balla
 
No interference by Russian military in Ukraine crisis: Minister
Moscow, Sep 1 (IANS) Russian Foreign Minister Sergei Lavrov Monday said Moscow will not send out military troops to...
Read more on Politics Balla