Don't Panic Over Margins, Amazon Investor: This Analyst Says It's Just 'More Of The Same'

Despite clear and large concerns among investors following Thursday’s Amazon.com, Inc. AMZN-led tech sell-off, BMO Capital Markets still sees the company as its “favorite idea for new money.”

BMO’s Daniel Salmon reiterated an Outperform rating and $1,200 price target.

The company reported a sales beat of $38 billion compared to the Street’s $37.18 billion estimate, but largely missed when it came to earnings.

Amazon reported an EPS of only $0.40 compared the $1.41 expected by the Street. The earnings do not compare to a typical quarter or year though, due to an abnormally high tax rate and other factors which crushed margins.

The Big Picture Is Still A Growth Story

Salmon highlighted Amazon’s revenue growth, which has accelerated year over year. In North America, sales gained 150 basis points quarter over quarter.

“We view [this trend] as an encouraging sign of the underlying strength of the Prime program,” said Salmon.

Salmon noted that operating margins contracted for the second quarter in a row, but believes that investments in fulfillment capacity and video content can will drive margin growth long term.

Salmon was also excited by Prime’s increasing reach around the world, which will serve as a catalyst for sales growth in the medium term.

Amazon’s acquisition of Souq.com recently closed, opening the door for Prime to expand to the Middle East. Additionally, the company announced the launch of Prime Now in Singapore just hours before reporting earnings.

The company has a history of purposely keeping margins low to drive growth, and Salmon says that this is just “more of the same.”

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