Amazon is Conquering the World, But Lowering Estimates

Stock (Symbol)

Amazon.com (AMZN)

Stock Price

$845

Sector
Retail & Travel
Data is as of
February 20, 2017
Expected to Report
Apr 26 – May 1
Company Description
amazon-videoAmazon.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) has had two missteps the past two qtrs, with 2017 profit estimates falling from $10.43 to $7.26. But do profits really matter because Amazon is taking over the world? Profit estimates have fallen for the 2nd straight qtr: 2017 from $10.43 to $7.26 and $2018 from $17.29 to $12.84 during that time. And profits are expected to grow just 6% the next 2 qtrs. But in the end, does it matter? The company dominates the retail scene to the point you can only own top retail stocks as the mall is dying. Now Amazon is getting into auto parts, home repairs and groceries. So growth opportunity is there. But there’s a few negatives people have focuses on lately, such as expenses for International expansion and costs for video content. Also, the company just missed revenue estimates as sales grew 22% last qtr, down from 29% the qtr before. Last year profit estimates looked so good one could value the company on a P/E basis. But now with estimates on the decline, one can make the excuse that current profits don’t matter as the company is becoming an even bigger juggernaut. I feel in the end AMZN is a core holding for growth stock investors, thus selling out isn’t a good option. But with the stock as well as the stock market at its highs you could sell a little and take some profits. 
One Year Chart
Amazon just missed revenue estimates as sales grew 22% last qtr, down from 29% the qtr before. Profit growth was 54% which beat the 37% estimate, but that estimate was 117% the qtr earlier. Qtrly profit Estimates have been reduced and are now 6%, 6%, 163% and 86% and we can’t get excited about the triple-digit growth ahead because estimates are falling. The P/E is 178, but I don’t think this stock trades on a multiple of earnings. A few qtrs ago I was all excited about the profits AMZN was expected to have, but now the company is back to lowering estimates as it spends to grow. Sigh. The Est. LTG fell from 42% to 38% but is still very, very good. 
Fair Value
Last qtr was the first time I was able to calculate a real Fair Value for Amazon since 2010. In the past profit estimates were so low you just had to assume or hope the stock would go higher — and we may be back to that point now that estimates are falling. Using a calculation of 75x earnings, the stock seems to be worth $963 next year, but do calculations really matter with AMZN? I don’t think so.
Bottom Line
Amazon is having its estimates lowered, but I don’t know if that really matters. The company is dominating the fields it enters. Next up are auto parts, home repairs and groceries. So although the stock is hitting a few bumps in the road, it’s still a core holding for growth investors. I am dropping AMZN down in my Growth Portfolio and Aggressive Growth Portfolio Power Rankings from 6th last qtr to 11th this qtr. Last qtr the stock was $755 and on a dip which was “a good time for investors to build or increase their position” and now with AMZN at $845 I might sell a few shares.
Power Rankings
Growth Stock Portfolio

11 of 31

Aggressive Growth Portfolio

11 of 16

Conservative Stock Portfolio

N/A