The shares of Amazon (AMZN) are falling after the company’s fourth quarter results came in below expectations. However, many analysts defended the stock, saying that the miss was caused by higher than expected shipping costs, while the company’s outlook for operating margin expansion remains intact.
RESULTS: Amazon last night reported Q4 earnings per share of $1.00, versus the consensus outlook of $1.56. The company’s revenue came in slightly below expectations. The e-commerce giant said the number of consumers subscribing to its Prime service jumped 51% in 2015 versus the year earlier.
ANALYST REACTION: Amazon’s profit margin came in slightly below expectations because of the large jump in Prime adoption and higher than expected order rates, Piper Jaffray tech analyst Gene Munster wrote. Additionally, a higher than expected percentage of orders on Amazon were lodged with third party retailers, raising the company’s fulfillment costs beyond the Street’s outlook, Munster stated. However, Amazon said it continues to focus on productivity, and in the past this has been the company’s way of saying that its margins are rising, the analyst wrote. As a result, he expects Amazon’s margins to beat expectations this year. Munster kept an $800 price target and Overweight rating on the shares.
According to Citi analyst Mark May, the decline in the stock in after-hours trading yesterday was overdone. The company’s margins, excluding certain items, rose in Q4 versus the same period a year earlier, and the revenues generated by its cloud business jumped 69% year-over-year, May estimated. He continues to expect Amazon’s EPS, excluding certain items, to increase to about $20 per share in 2020. May trimmed his price target on the shares to $780 from $785 but reiterated a Buy rating on the stock.
Also upbeat on Amazon was Pacific Crest analyst Edward Yruma. High fulfillment costs weighed on Amazon’s profits, but its results indicate that the company is gaining share in both retail and the cloud, the analyst stated. Moreover, the weakness in the stock creates a good entry point for long-term investors, according to Yruma, who kept an $800 price target and Overweight rating on the shares. Also defending Amazon today were analysts at JPMorgan and RBC Capital.
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