Amazon Crushes 4Q17 Estimates, Issues Upbeat 1Q18 View

Amazon Crushes 4Q17 Estimates, Issues Upbeat 1Q18 View
February 6, 2018

 
The world’s largest online retailer Amazon.com, Inc. (NASDAQ: AMZN) reported a record revenue and earnings in the fiscal 2017 fourth-quarter and surpassed all estimates. The company also saw a record 4 million sign-ups for its prime service in a single week. Amazon’s cloud computing service (Amazon Web Services) once again performed exceptionally to record a 44.5% y-o-y growth in revenue. The company also reported an upbeat 1Q18 revenue and operating income outlook. Therefore, on the basis of details discussed below, we are expecting the stock to rally further in the days to come.

The Seattle-based company’s net sales grew 38% to $60.50 billion, from $43.74 billion in the similar period last year. The Wall Street analysts were expecting $59.8 billion. Amazon acquired Whole Foods in the third-quarter of 2017. Excluding the revenue contribution of Whole Foods and the effect of currency conversion rates, Amazon’s revenue increased 25% y-o-y.

AWS posted revenues of $5.113 billion in 4Q17, up from $3.54 billion in the prior year similar period. North America sales surged 42% to $37.3 billion, while International sales grew 29% to $18 billion. Advertising revenue gained 62% to $1.74 billion.

Net income for the quarter ended December 31, 2017 was $1.856 billion, or $3.75 per share, compared with $749 million, or $1.54 per share in December 31, 2016.

The company gained $789 million due to the recent changes implemented in the corporate tax laws. Excluding the non-cash gain, net income would have increased 43% to $1.07 billion, or $2.16 per share. The corporate tax in the US has been lowered to 21%, from 35% earlier.

Operating income surged 69% y-o-y to $2.13 billion, mainly due to an expansion in the operating margin.

During the recent quarter, the company shipped more than 5 billion items under the Prime membership plan. Amazon doesn’t report the Prime members. However, it did confirm that the number of Prime members joined in 2017 was greater than any previous year. The company generated $3.2 billion from subscription fees in the fourth-quarter. The figures are poised for an increase in the current quarter as Amazon recently hiked the fee for month-to-month Prime plan, affecting nearly 30% of its subscribers. In the US alone, Amazon has about 60 million Prime subscribers.

Amazon also never divulges the revenue generated from the sales of smart-home devices. However, CEO Jeff Bezo’s statement indicates that the division had a splendid quarter.

“Our 2017 projections for Alexa were very optimistic, and we far exceeded them. We don’t see positive surprises of this magnitude very often — expect us to double down. We’ve reached an important point where other companies and developers are accelerating adoption of Alexa. There are now over 30,000 skills from outside developers, customers can control more than 4,000 smart home devices from 1,200 unique brands with Alexa, and we’re seeing a strong response to our new far-field voice kit for manufacturers.”

The company also issued an upbeat guidance for the current quarter. For 1Q18, Amazon expects net sales in the range of $47.75 billion to $50.75 billion, representing a y-o-y growth of 34% to 42%. Operating income is expected to be between $300 million and $1 billion.

Following the impressive 4Q17 results, Canaccord Genuity raised its price target to $1,650. While Susquehanna International Group raised the target price to $1,850, Aegis Capital issued a target price of $1,709. Therefore, fundamentally, the stock is expected to remain bullish in the week ahead.

Technically, the stock has found a strong support at 1,390. The RSI indicator has also entered into the oversold territory. Therefore, we can expect a bullish reversal in the share price.

Amazon - Technical Analysis - 6th February 2018

To gain from the anticipated dead cat bounce, we may purchase a call option from a binary broker. The option contract should be active until February 14. Furthermore, the stock of Amazon should trader near $1,390 in the NASDAQ.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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