Amazon Chugs Along in Q4, but Tepid Forecast Weighs on Stock

Update3 years ago
Core profit centers continue to surge, as Q1 guidance and accounting issues weigh on results.
On Thursday afternoon, Amazon reported mixed year-end earnings. The stock seesawed after hours, ultimately settling down around -5%.
The 1-Minute Takeaway:
Headline performance was mixed
Revenue and profits both grew robustly, but management forecasted a slower start to 2019 than we think many investors expected (driven partially by currency fluctuations)
Cloud business continues to defy gravity
Core profit center AWS (Amazon's cloud computing business) ended the year ahead of our expectations, recording yet another quarter of >40% year-over-year revenue growth. AWS profits grew even faster, up a whopping +61% vs. last year
Meanwhile, the core retail business hummed along nicely in-line with expectations
"Other" line item becoming increasingly less "other-able"
We felt one of the most notable aspects of the quarter was performance in "other" revenues, which we believe largely represents advertising revenues
Consistent with its strong performance over the last several quarters, the segment booked annual growth of nearly +100%
Though it's currently less than 10% the size of Amazon's retail business, we see the advertising business becoming increasingly important, and in its current state vaguely reminiscent of AWS in 2013
That is, while currently small relative to other segments, we think it's growing rapidly, bears structural advantages (Amazon knows virtually everything about what we buy and what to advertise to us better than any other company), and has a margin profile multiples more profitable than any other existing business within Amazon
Guidance and one-off accounting issues muddy the waters
The greatest concern for the quarter appeared to be the weak revenue forecast, which implied comparatively tepid growth in early 2019. There was no indication on the call that this represented a structural shift in Amazon's underlying competitive positioning
We believe other one-off issues complicated the story, like merger timing issues impacting Whole Foods growth rates, and accounting reclassifications impacting subscription revenue comparisons
Ultimately, we were pleased with Amazon's performance in the quarter, notwithstanding the accounting complications and tepid Q1 guidance. Be sure to keep an eye out on in our app for further dives into its young but increasingly important advertising business.
As of this writing, AMZN was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.

Become a Titan investor today.

Titan Global Capital Management USA, Inc ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept our Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities. Past performance is no guarantee of future results. Any historical returns, expected returns [or probability projections] are hypothetical in nature and may not reflect actual future performance. Account holdings are for illustrative purposes only and are not investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.
Refer to Titan's Program Brochure for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and Titan’s fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. Brokerage services are provided to Titan Clients by Apex Clearing, an SEC registered broker-dealer and member FINRA/SIPC. For more information, see our disclosures. Contact: 110 Greene Street, Suite 910, New York, NY 10012. Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
© Copyright 2021 Titan Global Capital Management USA, Inc. All Rights Reserved.