Amazon (AMZN) Q4 Strong on Margin Expansion, Lower Fulfillment Costs; Q1 Outlook Light - Cowen

Cowen and Company affirms Amazon.com (Nasdaq: AMZN) at Market Perform with a price target of $320 following strong Q4 results from the e-commerce giant.

Analyst John Blackledge noted that upside was led by improved gross margin and lower fulfillment costs, though revenue of $29.3 billion was a touch light.

Blackledge noted the following key items from the quarter:

• AWS financials will be broken out in 1Q15, providing rev/opex/op inc., we expect to get historicals ahead of 1Q15 earnings. We view AWS breakout as a positive, providing more transparency into the business;
• Fulfillment costs decelerated y/y in 4Q14 offsetting higher S&M, Tech, G&A costs, a positive opex outcome driven by (i) less FC adds than in '10-'13 (+13 fulfillment centers in '14 / total 109 FCs), (ii) efficiencies as bulk of FCs mature, (iii) suppliers shipping to specific regions, (iv) more FCs drives AMZN closer to customers. In '15, the leverage points could be offset by FC add'ns and investments in new mkts like India, but we lowered '15 fulfillment cost to +18% y/y (vs. +21%), offset by higher S&M and Tech costs; and
• Prime members rose 53% y/y, up 50% in the US, we estimate 31MM Prime members in the US and ~15MM Int'l.

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Amazon.com closed at $311.78 yesterday.

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