Amazon Smashes Estimates as Profits Explode

Stock (Symbol)

Amazon.com (AMZN)

Stock Price

$790

Sector
Technology
Data is as of
September 22, 2016
Expected to Report
Oct 20 – 24
Company Description
amazon_kindle_fireAmazon.com, Inc. (Amazon.com) is an e-commerce company. The Company’s products are offered through consumer-facing Websites, which include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It designs its Websites to enable products to be sold by the Company and by third parties across various product categories. It also manufactures and sells electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, Echo and Fire phones. Amazon.com operates in two segments: North America and International. The North America segment focuses on retail sales earned through North America-focused Websites. The International segment focuses on the Company’s operations done through its international Websites. It serves developers and enterprises through Amazon Web Services (AWS). It serves authors and independent publishers with Kindle Direct Publishing. Source: Thomson Financial
Sharek’s Take
David SharekAmazon.com (AMZN) continues to deliver spectacular profit growth. Over the past four qtrs AMZN’s profits per share have jumped from $0.17 to $1.00, $1.07 and then $1.78 last qtr. That’s a ten-fold gain in a year! The company was expected to earn $1.10 last qtr and beat the street by an astounding 68 cents. Year-over-year profit growth was 837% because AMZN made only $0.19 a year-ago. After spending to grow since 2011, the company has now reached an inflection point and profits are rolling in. Amazon made $1 in profits last year and is now expected to make $5 this year, $10 next year, $17 in 2018 and $24 in 2019. That kind of projection is unfathomable. I think the success of Amazon Web Services (AWS), which stores data on a cloud,  is the reason for the profit surge as sales are growing around 50% with a +20% profit margin (that’s good for Amazon, which makes around 4% on North American product sales). Another catalyst is Fulfilment by Amazon where businesses send their products to Amazon, which then packages and ships when an order is placed. The goods are eligable for Amazon Prime and Super Saver Shipping. With Amazon Prime you get free 2-day shipping on products as well as Fire TV with a Netflix-type entertainment offering for $99 a year. AMZN stock had a successful breakout last qtr, is up 10% since, and has blue skies ahead. Triple-digit growth now, beating the street, triple-digit estimates and escalating profit estimates are key characteristic of Superstar stocks.
One Year Chart
amzn_2016_q3As mentioned above, profits jumped 837%. Revenue rose 31% last qtr and Amazon’s profitable Amazon Web Services (AWS) division registered 58% sales growth. Profit growth is expected to be 359%, 112%, 101% and 43% the next 4 qtrs. The Est. LTG just increased from 49% to 51%.
Fair Value
amzn_2016_q3_phIt’s hard to put a P/E ratio on this company because profits are rising so rapidly. It might be best to use future figures and back-track. If the company makes $17 in 2018, 75 times profits would be a $1275 stock two years out. It’s very hard to price AMZN as if you do you will sell and likely be left behind. It’s a top flight stock and you just have to own a bit of it, take a step back, and not try to analyze it too much.
Bottom Line
amzn_2016_q3_10yrLast qtr I felt Amazon could be on the edge of amazing profitability. This qtr the company proved it in impressive fashion. There’s so many catalysts I don’t have enough space here to mention them. But in the end it’s all about profits and AMZN’s are set to climb from $1 to $24 in a four year time span. What’s more, Amazon’s sheer size makes it easy for big funds to take a position. AMZN ranks 5th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings. Buy and hold. 
Power Rankings
Growth Stock Portfolio

5 of 38

Aggressive Growth Portfolio

5 of 17

Conservative Stock Portfolio

N/A