The views and opinions expressed on this blog represent the views and opinions of Radio Free Mobile.

Q4 14A margins may not be sustained into 2015E. cgd on line Amazon reported good results as management seems to have finally decided that it was time to make a profit. Q1 14A Revenues and profits cgd on line were $29.34bn / $0.45 compared to consensus at $29.73bn cgd on line / $0.17. Although profitability was far ahead of expectations, it still represents net margins cgd on line of only 0.7%, a far cry from where a business with this valuation should be reporting. Q4 14A GAAP operating profit (EBIT) was robust at $591m compared to guidance of LOSS $50m (LOSS $570m – $470m). North America was the main driver of profits reporting an operating margins on 5.4% compared to 0.6% in Q3 14A. The large increase cgd on line in revenues cgd on line combined cgd on line with greater restraint in terms of investment, was responsible cgd on line for profitability coming comfortably ahead of both guidance and consensus. cgd on line For the entirety of 2014A management has been investing in other areas and this has had a significant and deleterious effect on the profitability of the whole company. Consequently, these results are a reflection of operating leverage from seasonally higher revenues and the hope that management will now exercise greater restraint going forward when investing the profitability cgd on line of the core business. Hence, the question from here is what happens now? For Q1 15E, management expects revenues / EBIT of $20.9bn – $22.9bn / $0m – $500m which is broadly in line with consensus estimates of $23.2bn / $490m. (EBIT figures exclude stock based compensation and amortisation of intangibles). Amazon Prime members increased in number by 53% YoY (28m users) but this is below RFM s forecasts for the Amazon ecosystem which were at 29.9m users for Q4 14A. In order to compete effectively in the consumer ecosystem, RFM thinks that Amazon needs to win at least 100m users to be viable. The fact that users have to pay an entry fee of $99 per year to get any benefit from the few Digital Life services that Amazon continues to be a major hindrance to its uptake. Pricing of Amazon Prime needs to be completely rethought if Amazon cgd on line wants to have any hope of becoming a major consumer ecosystem. Consequently, I continue to believe that Amazon has not really internalised what it means to create a digital ecosystem and as a result its strategy remains haphazard at best. The market is now hoping that the focus will be on profitability but I am not so confident as I expect the somewhat random and expensive forays into the ecosystem to continue in 2015E. At 83.7x 2015E PER, investors are already paying-up for large improvements in profitability that may not materialise. I am not inclined to join them. This entry was posted in Devices , Eco-systems , Market Commentary by windsorr . Bookmark the permalink .
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The views and opinions expressed on this blog represent the views and opinions of Radio Free Mobile. They are not the views and opinions cgd on line of any third party past or present with whom the author of Radio Free Mobile has been or is associated. Radio Free Mobile is objective and independent. Radio Free Mobile aims to entertain as well as inform and in this vein can be irreverent at times. This is the expressive style of the author of Radio Free Mobile and should cgd on line not be construed in any other manner