Growth at Amazon Is Accelerating - Citi

Citigroup is out positive on Amazon.com (NASDAQ:AMZN) noting that despite recessionary conditions, they view AMZN as having one of the strongest fundamental outlooks in the Internet sector, and 5.2% '08 FCF yield provides long-term investors with an attractive entry/adding price.

Key Elements Of The AMZN Long Thesis Remain Well Intact:

1. Still significant margin expansion potential;

2. Ongoing market share gains;

3. High levels of product innovation;

4) Material International exposure.

While overall U.S. January ecommerce data indicates modest deceleration, Amazon's U.S. traffic trends through February show acceleration - 14% Y/Y growth QTD vs. 13% in Q4. Int'l Growth Drivers - Amazon Prime (rolled out in Japan, Germany & UK in H2:07) and Category Expansion (Apparel, Sporting Goods, Jewelry/Watches & Health/Personal Care in '07) are underappreciated drivers of future International revenue growth & potential accelerators.

Int'l 3rd Party = Source Of EPS Growth - New proprietary analysis indicates that $100MM in incremental 3rd party sales boosts International gross margin by roughly 10 bps and generates $0.01 in incremental EPS.

Today, they are reiterating their Buy and providing four key updates to their AMZN Long Thesis. In this recessionary environment and in this tape, they have two choices: A) Publish an Internet Mattress Report or B) Continually re-test the Long theses. They choose the latter...

Target: $97.

Notablecalls: Must say I was surprised by this call. I didn't know AMZN had so much going for it. Do read the full call if you have the chance. It's going to create buy interest this morning.

Comments

[LBC:]

the analyst did not say that "growth at Amazon is accelerating". read the note. it is a rehash of old stuff, plus a look at comscore data, which we all know is practically useless.

2008 Mar 14 08:53 AM

[Ames Tiedeman:]

One would like to think that more consumers will be shopping on-line for good deals given the state of economic affairs in America. Perhaps more rural shoppers are looking to Amazon.com to facilitate their need for goods. Further, perhaps driving the family Chevy Suburban to the local mall has become less economically viable given the acceleration of the cost for Petroleum.

2008 Mar 14 09:11 AM

[tcsnetwork:]

I don't agree with the reasoning that people with buy more from amazon because of higher fuel cost. If anything higher fuel cost will hurt amazon because of thier free shipping options. I think they will have higher shipping costs that will cut into thier margins, which are already razor thin. Also the PE of this stock is WAY to high considering market conditions. I suspect they will be an earning warning any day now. IMHO

2008 Mar 14 11:14 AM

[Urbane Gori...:]

I buy from Amazon because I can normally get the item cheaper than in the local stores and **Abracadabra** it appears on my doorstep 3 to 4 days later... Also, the reviews of the items can be illuminating and the alternate choices help make a good decision... Course, I'm not an impulse buyer. I think as life gets busier and as people become more connected to the Web thru their cellphones and PDAs etc, that the Amazon model will blossom. What's not to like....

2008 Mar 14 02:52 PM

[tcsnetwork:]

I like the company, but the stock way overvalued for this market. The insider selling is a concern as well. I just believe that they haven't been honest regarding this quarter profits i.e. the CFO's double talk recently. Anyways, I sold in the high 80's not getting back in anytime soon. I think it will see 50 long before it hits 90 again.

2008 Mar 14 04:08 PM

[tessant:]

growth might be acelerating, but margins are horrible. amzn isstill a retailer until they start to offer the web 2.0 services


-scott
growthportfolio
"the facebook of investing"

2008 Mar 15 06:55 PM