Amazon Revenue Miss Is Your Golden Opportunity
By Sangara Narayanan
Amazon (AMZN) sharply declined after the world's largest e-commerce company disappointed the market by missing Wall Street's Q4 revenue estimates and provided a lower-than-expected guidance for Q1. Amazon posted EPS of $1.54 with revenues coming in at $43.74 billion, while the market expectation was $1.35 EPS and $44.68 billion in revenues. To add more pain, Amazon is now expecting Q1 revenues in the $33.25 billion to $35.75 billion range, while the market was looking for $35.95 billion in revenues.
"Amazon Fulfilled units, which is the combination of retail plus FBA, grew nearly 40% last year and that compares to our paid unit growth of 24% in Q4.
On the unit growth, we're very happy with the 24% unit growth that we saw in Q4 like you mentioned. Our unit growth has been strong and that's primarily attributable to our Prime program and the customers and members that enjoy that program." - Amazon Q4 earnings call
According to Amazon's press release, Fulfillment by Amazon (FBA) delivered more than two billion units on behalf of sellers in 2016, and the number of active sellers using FBA grew more than 70%. Using the FBA service, Amazon sellers from more than 130 countries fulfilled orders to customers in 185 countries. During the fourth quarter, FBA units represented more than 55% of total third-party units. Overall, Amazon did well on the unit growth front during the fourth quarter, reporting 24% growth during the quarter compared to last year.
Though we don't know the exact number of third-party sales during the quarter, it's clear that growth is accelerating on that front. If third-party product sales increase at a faster rate than Amazon's first-party products, Amazon's revenues will be pulled down, but earnings will increase due to the commission-based nature of third-party sales. It's not necessarily a bad thing as long as unit growth keeps ticking up.
Despite missing the top line numbers, Amazon surprised with a wide bottom line beat, reporting $1.54 EPS against the expectation of $1.35. Net sales for the quarter has increased by 22%, and for full year 2016 it was up 27%.
Double-digit growth is no mean feat for a company with revenues in excess of $100 billion. Amazon is already a global company with strong operations in Europe and Asia Pacific. The company also noted that the Amazon Prime customers grew in the tens of millions last year - growth that will keep their retail sales numbers ticking up at a steady rate.
The top line miss as well as the tepid guidance will keep the stock price down for some time and opens up an attractive window to add the stock to your portfolio. As investors, we should be hoping to see more quarters like this where fundamentals remain strong, but Amazon ends up disappointing Wall Street numbers.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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This article first appeared on GuruFocus.
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