Amazon Smashes Consensus And Breaks Out To A New High

Amazon Delivers Results, Not Just Packages

Amazon (AMZN) is one of the most heavily watched and traded companies for a reason. Not only is it one of the world’s largest companies it is still growing at an amazing pace despite increasing competition. The fourth-quarter results were released yesterday after the close of trading and highlight that growth. System-wide net consolidated revenue for the 4th quarter topped 21%. For a company with a market cap near $1 trillion and nearly $90 billion in annual sales that’s quite a feat.

Headline revenue came in at $87.44 billion with EPS of $6.47. Revenue beat consensus by about 1.5% or $1.35 billion while EPS blew past the consensus figure. Analysts had been expecting about $4.00 per share, Amazon proved its earning power once again with GAAP EPS of $6.47. Although there is a buyback program in place, for now, cash is being funneled into the companies coffers for use on future growth projects.

Strength In All Segments, Guidance Is Raised

The company saw strength in all segments although there was some weakness in physical stores as a standalone business. Revenue in the physical stores business came in at $.40 billion versus the $4.1 billion expected by the analysts. Even so, operating income increased on a YOY basis to $3.88 billion and surpassed consensus by 43%.

Much of the strength is driven by Prime. The Prime Membership figures continue to grow and hit new records in the 4th quarter. Brazil, one of Prime’s newest markets, has produced the fastest growth of any market in Prime’s history.

“Prime membership continues to get better for customers year after year. And customers are responding — more people joined Prime this quarter than ever before, and we now have over 150 million paid Prime members around the world,” said Jeff Bezos, Amazon founder and CEO

Amazon also issued its 1st quarter guidance with the 4th quarter report and it is favorable if not better than expected. The company is expecting consolidated revenue in a range between $69 and $73 billion and deliver $3 to $4.2 billion in operating income. The consensus revenue estimate is $71.6 billion in revenue and $4.05 billion in operating income.

Amazon Web Services Outperforms, Drives Beat

 One of the biggest drivers of growth is Amazon Web Services. AWS revenue grew 34.5% over the last year and surpassed analysts estimates by 1.5%. At current levels, AWS is now about 10% of total revenue. The strength in AWS is not expected to relent as businesses turn more and more to the cloud. Later this year, when the 5G revolution hits full swing, the shift to the cloud will intensify and ensure solid revenue for this segment.

Barclay’s analyst Ross Sandler says this quarter’s print should put fears of AWS growth to rest. The segment only saw 100 basis points of deceleration and more add-ons YOY than Microsoft’s (MSFT) Azure and Google (GOOG) Cloud combined. Sandler says Amazon has room to run and most investors are under-exposed. Other analysts including those at RBC, Morgan Stanley, Bernstein, and UBS upped their price targets after the report was released.

The Technical Outlook: Bullish With A Chance Of Hitting $3200

Shares of Amazon jumped more than 11% on the earnings news and broke to a new high. The early action shows profit takers are taking advantage of the surge but support is holding at the previous all-time high. Assuming the breakout holds price levels above the previous all-time high we can expect higher prices to follow over the next 12 months.

RBC Capital’s Mark Mahanay is the most bullish on Amazon saying there is a case for $3200. That said, he raised his price target to $2,700 which is a more realistic target at this time. Looking at the weekly charts, today’s surge confirms a bullish triangle that has been forming over the past two years. The baseline of the triangle is around $1400 which gives a magnitude in the $600 to $700 range. Projecting this from the now-broken all-time high gives a target of $2,600 to $2,700 or 35%.