How Amazon Became Bigger Than Walmart

24 Jul 2015 | Author: | No comments yet »

Amazon Earnings: Not Too Shabby.

Amazon.com Inc. surpassed Wal-Mart Stores Inc. as the world’s biggest retailer by market value after a surprise second-quarter profit sent the e-commerce company’s stock into record territory. It was actually released without much fanfare back in March, but is getting attention now because of the marketing push around Amazon Prime Day, the company’s attempt to create a Black Friday-style retail frenzy in the run-up to back-to-school season. Amazon shares rose as much as 19 per cent to $573.45 in after-market trading on Thursday, giving the Seattle-based company a value of about $267 billion. The reasons that Amazon is pushing the card are clear: For one thing, by adding new Prime membership perks, it hopes to gain more Prime members, at $99 a year each.

Amazon also announced a 20 percent net sales increase to $23.18 billion, operating income of $464 million, and a 69 percent increase in operating cash flow, reaching $8.98 billion over 12 months. “We unveiled Amazon Business, opened Amazon Mexico, launched Prime free same-day, rolled out our ninth Prime Now city, broke our Black Friday record with the first-ever Prime Day, received 11 Emmy nominations for Transparent, debuted six new kids pilots, brought Echo to general availability, introduced the Alexa Skills Kit and Alexa Voice Service, opened FBA Small and Light, continued to double down on our fastest growing geography[,] launched 350 significant AWS features and services so far this year (ahead of last year’s pace), introduced AWS Educate, and entered into agreements for new solar and wind farms—enough to exceed our 2016 goal of 40 percent renewable energy,” he continued. Perhaps less obviously, Amazon pays lower interchange fees to transaction processing companies for purchases made using the Prime Store Card than it does on those made using a traditional Visa, MasterCard, or AmEx.

Amazon turned 20 years old this month, and instead of sharing cake in the break room, the company introduced “Prime Day,” a global shopping event held on July 15 in the U.S., U.K., Spain, Japan, Italy, Germany, France, Canada, and Austria. But despite record-breaking sales—including discounts on the Kindle lineup, Echo speaker, various electronics, and other non-ten items—the Black Friday-in-July event failed to impress. While the card doesn’t technically have an annual fee, you have to pony up nearly $100 bucks a year for the two-day shipping and media streaming service.

But there’s a catch on this: If the purchase isn’t paid off at the end of that period, you’ll be “assessed on the promotional balance from the date of the purchase,” according to the card’s terms and conditions. Also, don’t expect a normal-looking piece of plastic if you’re approved. “The card itself is made out of paper, like an auto insurance card,” says NerdWallet’s Sean McQuay. As of last week Friday, analysts surveyed by Bloomberg had an average price target of $480 with 32 analysts rating the firm a buy, 16 hold and 1 sell.

To get 5% back on all purchases at a store as varied as Amazon is a great deal.” Other cards do allow you to save money on Amazon purchases, but with more restrictions. AMZN reported a break-out qtr with revs beating the high- end of guidance and 2% above our est. driven by accelerating EGM and AWS topline growth, while margins shined with GM’s 90bps and adj. op inc. 200bps above forecast. 3Q15 revenue and adj. op. inc. crushed our and street pre-print estimates.

And if you’re a heavy user who spends $200 a month at Amazon, using the card will earn you enough to cover the cost of Prime with some cash left over. While the ability to pay for a big purchase without interest for at least half a year sounds appealing, you’ll end up with a much larger bill than you bargained for if you don’t pay off your new television on time.

America EGM rev. into the holidays; 2) AWS ⅛Amazon Web Services…cloud computing⅜ revenue strength to drive potentially higher multiples; 3) potential margin upside from AWS, 3P mix and fulfillment efficiency. Matthew Goldman, the chief executive of credit card rewards site Wallaby Financial, received a credit limit that was a fraction of what he was offered on his other cards. Consistent with last quarter, operating income guidance for 3Q15 indicated a strong top line and margin expansion for AWS in addition to positive expectations for Prime Day. Moreover, using up a large portion of the available credit on an individual card can harm your overall credit score, says Goldman, making it more expensive to borrow in the future. Only apply for this card if you are already a Prime member who shops at Amazon frequently, doesn’t carry a balance and can hold yourself to spending about 20% to 30% of your available credit each month.

We still see room for more upside from cross-border trades (CBT) into China and opportunities for the advertising business for small/medium businesses (SMBs). We think Amazon is well positioned for share gains with the best customer experience in retail (lowest prices, best selection, best service) and substantial structural cost advantages. ..we believe AMZN will continue to reap margin benefits from fulfillment center maturation and shipping fee savings from its expanded footprint we reiterate that while investor focus continues to center on AWS reacceleration and strength in EGM, we would instead refocus on Amazon’s expanding core retail gross profit on the ongoing benefits of FC maturation and growth of Prime membership. We believe this quarter is further evidence that Amazon’s investment in infrastructure, logistics, and web services is accelerating market share gains, cash flow growth, and continued high returns on invested capital.

Upgrade to OW: We normally shy away from ratings changes on quarters as we tend to wait for the stock to settle after a big move and then re-evaluate. This quarter was too good in our view to wait and, despite the sizable move in the stock already this year (and aftermarket), we now believe there is even more upside.

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