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Buy Amazon (AMZN) Stock On Rising Profits, Before 2019 Comeback?

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Amazon (AMZN - Free Report) is coming off its worst quarter since 2008 as it fell to close the year on the back of the broader market downturn. With that said, investors also voiced real concerns for the e-commerce powerhouse’s slowing revenues. But, is now the time to buy Amazon stock as it becomes more profitable? Wall Street analysts certainly think so.

Wall Street Ratings

Shares of Amazon popped 3% Monday as it tries to start 2019 on the right foot after a dismal fourth quarter. Amazon stock plummeted 25% to close the year after Jeff Bezos’ firm saw its Q3 revenues jump 29% to hit $56.6 billion. This topped Wall Street estimates but marked a significant slowdown compared to the e-commerce giant’s recent growth, including Q2’s 39% surge and Q1’s 43% climb.

Despite the revenue slowdown, 41 of the 42 analysts with ratings on AMZN stock have it as a buy at moment, according to FactSet. Clearly, these kinds of lopsided ratings signal that Wall Street expects Amazon stock to bounce back in 2019.

 

High-Margin Growth

Investors had grown to expect the e-commerce giant to report 40% top-line growth. But Amazon, like Walmart (WMT - Free Report) other giants, eventually falls victim to the law of large numbers that makes it harder to report massive year over year revenues gains on a percentage basis.

Now investors will likely have to search for new reasons to buy AMZN stock, and there seem to be plenty of reasons to be optimistic. And the idea is relativity simple: Amazon’s revenue might be slowing but its earnings look ready to soar.

Right off the bat, Bezos’ firm is projected to capture approximately 50% of the total U.S. e-commerce market in 2018, up from 44% last year. On top of that, the Seattle-based power’s higher-margin, third-party seller business has grown.

This brings us to Amazon’s other extremely profitable businesses. Amazon Web Services grabbed the largest portion of the cloud infrastructure services market last quarter at roughly 35%. This helped AMZN crush second-place Microsoft’s (MSFT - Free Report) roughly 15%, along with IBM (IBM - Free Report) , Google (GOOGL - Free Report) , and Alibaba (BABA - Free Report) . AWS revenues also surged 46% last quarter and 49% in Q2.

Plus, Amazon’s high-margin subscription business has skyrocketed over 50% in each of the past four quarters. On top of that, Amazon is expected to become the third-largest digital advertiser behind only Facebook (FB - Free Report) and Google. Going forward, Amazon’s share of the online advertising market is only expected to expand as more consumers start their product searches on the e-commerce giant’s platforms.

 

Q4 & Fiscal 2019

Moving on, our current Zacks Consensus Estimate calls for Amazon’s Q4 revenues to climb 18.5% from the year-ago period to reach $71.61 billion. This would clearly mark the continuation of the top-line slowdown that caused many AMZN investors to run. And jumping ahead to fiscal 2019, Amazon’s revenues are projected to jump just 20.5% above our 2018 estimate to reach $280.4 billion.

Now let’s move onto the bottom end of the income statement because this is where Amazon’s growth looks poised to come from—at least over the next year. Amazon’s adjusted Q4 earnings are projected to soar 153.7% to reach $5.48 per share. Plus, AMZN’s full-year earnings are expected to skyrocket 328.6%. Investors should also note that Amazon’s fiscal 2019’s EPS figure is projected to come in 35% higher than our current-year estimate.

Bottom Line

Shares of Amazon popped 3.09% through morning trading to reach $1,624.05 as investors decide what to do with AMZN stock as the company moves into a new phase. Despite Monday’s jump, Amazon stock still sits roughly 21% below its 52-week high of $2,050.50 a share. This alone might set up a solid buying opportunity for what had been one of the hottest stocks on the market.

In the end, Amazon’s high-margin AWS, advertising, and other subscription-based businesses look poised to grow to help Bezos’ firm become more profitable. And let’s not forget that the tech giant is also ready to expand its live sports offerings, which should help it stand out against Netflix (NFLX - Free Report) and soon enough Disney (DIS - Free Report) , Apple (AAPL - Free Report) , and AT&T (T - Free Report) .

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