Amazon: All Eyes On Prime And AWS

| About: Amazon.com, Inc. (AMZN)

Summary

AMZN will report on Thursday with consensus expecting $1.63 in EPS and $35.98b in revenue.

Prime ecosystem growth and AWS will be two focus areas.

Remain bullish on AMZN given its execution on driving ecosystem expansion and cloud services.

Amazon (NASDAQ:AMZN) will report earnings on Thursday with consensus expecting $1.63 in EPS and $35.98b in revenue, +22.7% y/y. AMZN is one of my top e-commerce picks given the strength of its Prime ecosystem with some estimated 60-80m users globally and a superior service offering that drive higher purchase frequencies and larger order size. Strong holiday sales that we saw are supportive of AMZN's Q4 numbers, and I expect it to deliver another beat on the quarter. On AWS, the growing demand for cloud services among SMEs across North America continues to support this segment's growth. Recent expansion into Canada highlights the industry demand profile and the opportunity for AMZN to take shares from the local incumbents such as Rogers (NYSE:RCI), Telus (NYSE:TU), Shaw (NYSE:SJR) and Cogeco (OTC:CGECF). I remain bullish on AMZN ahead of the print.

On AMZN's core e-commerce business, Prime ecosystem has been the primary growth engine judging by the 23m items that were ordered globally on Cyber Monday (+40% y/y growth) and more than a billion items that was delivered by FBA service. I believe that Prime will be at the forefront in building AMZN's ecosystem that consists of devices, content, media, cloud services and e-commerce. Last year showed us that the Prime Ecosystem is stronger than ever with the holiday season adding 3m Prime users. As e-commerce continues to gain share in total retail spending, AMZN is the clear beneficiary of the e-commerce trend. While electronics and books have largely dominated the company's top categories, it is worth noting that apparels is beginning to make a meaningful contribution while grocery could be a sleeper catalyst in 2016.

Also interesting to note that Sponsored Products' penetration among AMZN merchants more than doubled as sellers build their brands and advertise on AMZN. This model is inherently similar to that of Alibaba (NYSE:BABA), which allows AMZN to quickly scales up its e-commerce platform by attracting the merchants and take incremental market share from offline retailers that have been hit by the shift in consumer shopping habits from offline to online. Interestingly, the number of Chinese merchants selling on AMZN has been growing very strong since the rollout of the Sponsored Products, and I expect AMZN to see higher cross-border e-commerce volume from overseas as merchants look to tap into the US consumers.

As for AWS, I am quite positive on the near-term opportunities and AMZN's solid customer base. The growth in Internet of Things and Business Intelligence should support the medium-term outlook, particularly when the current pricing environment appears to be more rational than last year. Historically, cloud customers often talk about the competitiveness of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT), but AWS has recently gained recognition given its reliability and product offering. In recent years, larger enterprise such as Netflix (NASDAQ:NFLX), General Electric (NYSE:GE) and BMW (BAMXY) started to choose AWS to be its platform provider, and it appears that these enterprises are moving beyond the experimental stage and onto the mass adoption stage, which validates AMZN's capability and reliability. That said, a meaningful migration by the larger enterprise onto the AWS is a likely scenario, and the company can certainly benefit from this trend.

Conclusion, remain bullish on AMZN.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.