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Bull of the Day: Amazon (AMZN)

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As Amazon (AMZN - Free Report) finally starts turning the valves on profit and generating strong new sources of revenue through AWS, the numbers are impressive.

This year's estimated sales haul is expected to top $134 billion, representing 25.5% annual growth.

And the EPS growth shows more of those sales hitting the bottom line with 330% projected profit acceleration.

It was the bump in the 2016 EPS consensus from $4.60 to $5.38 in the past 90 days that kept AMZN shares a Zacks #2 Rank or higher in the second quarter.

Now, with the upward nudge for 2017 estimates from $9.64 to $9.82, representing 83% EPS growth for next year, AMZN is back to a Zacks #1 Rank.

Amazon Smashes 1Q Earnings Estimates, AWS Still The Star

Amazon’s first-quarter EPS of 1.07 beat the Zacks Consensus Estimate of $0.61 by 75%. The North America and AWS segments were strong contributors to profits while investments in international continued. Non operating income also increased.

The company continued to impress investors as a leading provider of cloud infrastructure services to enterprise customers. The Amazon Web Services (AWS) business generated revenue of $2.56 billion in Q1, growing at over 60% year over year in each of the last four quarters.

Even more encouraging is the fact that AWS generates much stronger margins than the traditional retail business, which should remain a positive for the company’s profitability as it continues to grow in the mix.

This is despite the fact that Amazon has been consistently slashing prices to deal with growing competition, particularly from Microsoft and Google. This business is a major reason for the upward revision to analyst estimates since the company last reported earnings.

And the optimistic analyst outlook our AWS is projected into 2017 with 20% projected sales growth of over $160 billion.

The Bezos Way

I just read a fascinating book which profiled brilliant billionaires like Richard Branson of Virgin, Larry Page of Alphabet (GOOGL - Free Report) , and Elon Musk of Tesla (TSLA - Free Report) . And Jeff Bezos of Amazon rounded out a gang of four "exponential entrepreneurs" that Bold author Peter Diamandis calls friends.

In the book, Diamandis highlights some of the core philosophy of Bezos that has carried Amazon to it current success. Beyond the tenets of the infamous 1997 letter to shareholders, Diamandis finds the answer Bezos gave to an AWS audience in 2012 much more revealing...

Question: What's going to change in the next ten years?

Bezos: I almost never get the question "What's not going to change in the next ten years?" You can build a business strategy around the things that are stable in time. In our retail business, we know that customers want low prices, and I know that's going to be true ten years from now. They want fast delivery; they want vast selection.

Assuming the web will still need fast, reliable and affordable cloud infrastructure and services, I bet this philosophy applies to AWS too, now and ten years from now.

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research

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