Amazon's Investment In Growth Has Worked And Should Continue To Work

Amazon.com, Inc. AMZN continues to invest in growth opportunities and these investments should support consistently solid topline growth and longer-term FCF growth, Axiom’s Victor Anthony said in a report. He maintained a Buy rating on the company, with a price target of $953.

Amazon reported its Q3 topline 1.5 percent higher than Axiom’s estimate, backed by strength in retail while Amazon Web Services (AWS) numbers came in-line with expectations. Gross margins were 80bps short of the estimate. CSOI margins missed the estimate by 10bps on increased investments in digital content, India, fulfillment, devices and AWS, Anthony mentioned.

Investments To Continue

Amazon’s margin guidance indicates that the company would continue with elevated investment spend, Anthony noted. Amazon is building its own shipping network and increasing delivery capacity for the holidays.

Amazon has a leading position in ecommerce outside of China. Moreover, AWS is scaling better, while margins are being driven by increased utilization and improved efficiency. Investments for growth have yielded results for Amazon, and will likely continue to do so.

“Retail unit growth has accelerated on a larger base and Amazon fulfilled units are growing much faster. Amazon is investing against that. Video and devices reinforce the Prime value proposition. Prime Now and Fresh are expensive today (& risky) but should give Amazon a competitive edge in the future, and India could become one of Amazon’s largest markets one day,” Anthony wrote.

Following Amazon’s mixed Q3 results, analysts have aligned their estimates to better reflect the company’s investment spend.