Amazon Dominance Continues with Earnings

Amazon (AMZN) continues to beat the numbers with its business results, fueling the continued rise in its stock price. Now that it has conquered all of retail, analyst eyes are on how big it can grow its cloud Amazon Web Services (AWS) and related businesses.

Last night after hours, the e-retail and cloud IT giant reported Q1 revenue that topped analysts’ expectations, with profits beating consensus estimates, sending its shares rocketing to an all-time high (again), up $15.87 (1.75%) to $934.41. Amazon’s operating income was $1 billion, above consensus for $900 million. Revenue in the three months ending in March lifted 23%, year over year, to $35.7 billion. Earnings per share (EPS) were $1.48 per share. Analyst consensus estimates were for $35 billion and EPS of $1.08.

What's truly impressive about Amazon is not that it continues to defy expectations -- but how it dominates so many areas, including retail, International expansion, and cloud.

"Key investment areas – fulfilment/logistics, India, media consumption, category expansion – continue to bear fruit in the form of Prime adoption & higher shopping velocity," said a research note from the UBS analyst team.

AWS, Amazon's cloud IT service, grew by 43% year-over-year. And Amazon continues to boost capital spending to support the business.

That capital spending is flowing to other segments, including optical components, to fuel the massive expansion of Amazon's cloud. Raymond James analyst Simon Leopold observed that Amazon's capex among the three cloud giants ( Amazon, Microsoft and Alphabet), rose above above consensus (+24.3% higher) while the capex for the group as a whole declined on a sequential quarterly basis. These indicates that Amazon continues to be be extremely aggressive in building out its infrastructure and appears to be growing it faster than others in the space.

UBS believes that AWS will maintain "the dominant position in the Infrastructure-as-a-Service (IaaS) market and increasingly within Platform-as-a-Service (PaaS) & other IT spending pools." UBS expects AWS revenue will grow at ~22% CAGR.

Not everybody was universally positive, however. Amazon's valuation remains sky high and difficult to reconcile on traditional metrics such as price/earnings (P/E). The forward P/E ration of Amazon's stock price is 125, according to data from Nasdaq. It's price/sales ratio is high, at 3.25 revenues, with Amazon now sporting a market capitalization of $446 billion.

These high valuations and Amazon's continually rising stock price have led some Wall St. analysts to question the valuation and become more conservative. For example, Pacific Crest lowered its rating on Amazon to sector weight from overweight, citing increasing competition and "moderating" growth rates in its businesses.

"Amazon's 1Q17 results were impressive. However, the stock is approaching our $961 target and stepped-up competition may dampen near-term upside," Pacific Crest analyst Edward Yruma wrote in a note to clients Thursday. It could be "as good as it gets (for now)," as the report was titled.

But we've all heard that before.