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Prime & AWS Likely to Benefit Amazon's (AMZN) Q1 Earnings

Zacks Equity Research

Amazon AMZN is scheduled to report first-quarter 2019 earnings on Apr 25.

We note that the company beat the Zacks Consensus Estimate in each of the trailing four quarters, recording an average positive earnings surprise of 88.81%.

In the last reported quarter, Amazon’s earnings of $6.04 per share comfortably surpassed the Zacks Consensus Estimate, delivering a positive surprise of 8.8%. The figure also surged 61.5% year over year.

Net sales of $72.38 billion outpaced the Zacks Consensus Estimate of $71.93 billion. Further, the figure surged 19.7% from the year-ago quarter and was within management’s guided range of $66.5-$72.5 billion.

Solid momentum of Prime along with growing retail initiatives drove the results. Further, robust Amazon Web Services (AWS) and its growing adoption contributed to the top line in the fourth quarter.

For the first quarter, Amazon expects net sales between $56 billion and $60 billion, suggesting an improvement in the range of 10-18% from the year-ago reported figure.

The consensus mark for first-quarter 2019 earnings stands at $4.61, unchanged for the past seven days.

Let’s see how things are shaping up prior to this announcement.

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Deepening Retail Focus & Prime Benefits to Aid Q1

Amazon’s strengthening global footprint in the retail market on the back of aggressive strategies, expanding seller and buyer base, distribution strength and robust online retail platform are expected to aid the top line in the first quarter as well.

In the beginning of the first quarter, the company took efforts to initiate direct sales of merchandise by establishing in-house fulfilment and delivery network in Brazil. This move is in sync with its strategy to bolster presence in the country’s e-commerce space.

Further, the company’s growing physical presence primarily backed by rapidly expanding cashierless stores, Amazon Go, continues to enhance its influence in the retail sector.

Additionally, its Prime enabled grocery delivery and pick-up services are bolstering presence in the grocery retail space. These endeavors are providing the company a competitive edge over retailers like Walmart WMT and Target TGT.

Moreover, Prime benefits which include strong loyalty system, customer friendly offers, robust same-day and two-hour delivery services remains the key catalyst in attracting shoppers to its e-commerce platform and physical stores such as Whole Foods Market and Amazon 4-Star.

Further, the company introduced an advanced and convenient method of delivering packages for Prime members in the first quarter. Prime members can now get their orders delivered by selecting any day of the week via Amazon Day.

All the above-mentioned initiatives are likely to aid the adoption rate of Prime in the quarter under review.

Expanding Streaming Space Reach to Benefit Q1

Amazon has made every effort to bolster presence in booming streaming space further during the first quarter with the aid of its robust Prime and IMDb.

Prime’s expanding portfolio of movies, audio and video content backed by Amazon’s heavy investment on regional and local language content is a major positive. During the first quarter, the company added the third season of sci-fi series, The Expanse, to its portfolio.

Further, the e-commerce giant brought the rights to Major League Baseball’s (“MLB”) OTT service on Prime Video, in a bid to strengthen its sports content portfolio.

Additionally, Amazon rolled out a free video streaming channel via its IMDb movie website. The new channel called IMDb Freedive is free of subscription and supports advertisements. The channel will stream popular TV shows like The Bachelor, Fringe, Heroes and Without a Trace, to name a few.

Expanding content portfolio and video streaming services are likely to contribute significantly to the to-be-reported quarter results.

Q1 Results to Gain from Strengthening AWS Offerings

With growing opportunities in the cloud market, Amazon continues to witness rapid adoption of its cloud platform, AWS. This can be attributed to its expanding cloud services portfolio.

In the first quarter, AWS introduced Amazon DocumentDB, consequently expanding the database services portfolio of AWS. Notably, the new service is compatible with MongoDB applications and tools. Additionally, the company made a new feature of its scalable data warehouse Amazon Redshift, called Concurrency Scaling available to the customers in general.

All these are expected to aid AWS revenues in the first quarter, which in turn will aid the top line. Further, these will help the company in gaining competitive edge against Microsoft Azure and Alphabet’s GOOGL Google Cloud. We believe all these factors are likely to aid the AWS revenues in the third quarter, which will help in driving the company’s top line.

Currently, Amazon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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