- Ahead of Thursday afternoon's Q4 report, Piper's Gene Munster (Overweight rating, $800 target) declares near-term Street estimates for Amazon (AMZN +1.4%) to be too low, and insists the company can grow margins while making big investments.
- Munster asserts Amazon's 2015 margin expansion was driven by $10B worth of gross profit growth, fulfillment leverage, and strong Prime adoption, rather than spending cuts. He sees op. margin growing 240 bps in 2016, fueled by AWS growth, lower Prime customer retargeting expenses, robotics investments, a mix shift towards third-party sales, and the leveraging of Amazon's Indian infrastructure.
- He adds Piper's Amazon Search Index indicates the company saw 24%-26% Y/Y unit growth in Q4, and believes markets only expect 22%-24%. The note comes a year after Munster called Amazon his top 2015 pick. Shares rose 118% in 2015 with the help of market-pleasing AWS figures; they're down 11% in 2016 amid a market selloff.
- Separately, The Information reports Amazon, which took a $170M charge related to the Fire Phone in 2014, is talking with Android OEMs about creating phones in which Amazon's apps/services replace Google's (GOOG, GOOGL), much as they do on Fire tablets. The solution could prove a tough sell, given the popularity of Google's apps/services (Maps, Gmail, YouTube, Now, etc.) and the fact Google Play's app selection remains much larger than that of Amazon's Appstore for Android.