Amazon +15%; 3 upgrades arrive, JPMorgan values AWS at $66B
- Janney, JPMorgan, and Raymond James have upgraded Amazon (NASDAQ:AMZN) after the company beat Q1 estimates on the back of a 24% Y/Y increase in North American segment revenue, guided in-line, and (importantly) reported AWS had a $265M Q1 op. profit on revenue of $1.57B ($680M and $5.16B for the trailing 12 months). At least 7 other firms have hiked their targets. Amazon's market cap is at $181.6B.
- JPMorgan's Doug Anmuth (upgrade to Overweight, $535 target) now values AWS at $66.3B, or 16x estimated 2016 EBITDA. "[W]e think the reported profitability level far exceeded virtually all expectations. CSOI margins of 17% in 1Q15 and 14% in 2014 have been driven by increasing scale and greater utilization, along with additive services beyond core EC2 and S3 [computing and storage] services. When factoring in heavy depreciation, AWS has EBITDA margins of around 50%."
- Janney's Shawn Milne (upgrade to Buy): "AWS segment margins of 16.9% in Q1, 14.2% in FY14 — well ahead of general Street thoughts that AWS was in 'investment mode,' and losing 5-10% (or more)." He does note Amazon's North American retail op. margin fell 2.5% in 2014 from 2.8% in 2013 (thanks largely to the Fire Phone debacle), but adds it rebounded to 3.9% in Q1.
- Raymond James' James Kessler (upgrade to Outperform) focuses on Amazon's total margin improvement. "Non-GAAP operating margin of 3.1% was ~100 bp above our/consensus estimates driven by improved gross margins and modestly lower than expected operating expenses. Amazon also guided 2Q margins above consensus at the high end."
- On SA, Brian Nichols argues AWS would be worth $50B at 45x forward op. income, and thinks the business could be valued at $85B if publicly traded by itself. The Panoramic View: "Facebook and other leading tech companies used to garner a 10x revenue valuation when they were in similar stages of development. I think that the same can be applied to AWS."
- On the CC (transcript), Amazon stated active customer accounts rose by 8M Q/Q to 278M (260M paying customers). Y/Y paid unit growth was steady at 20%, and 3rd-party sellers made up 44% of sales vs. 43% in Q4.
- Prior Amazon earnings coverage
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