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Amazon - Company Profile - Profit realization in 2013?




Indigo Equity Research


01 Feb 2013





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Company Profile - Point of realization in 2013? This c. 40 page report includes: SWOT analysis, investment thesis, fundamental & DCF valuation, significant recent events, operations analysis, ten year financial analysis, business model, strategy, industry overview, analysis of latest Q results, …. Independent, buy-side, fundamental, financial analysis. www.indigo-equity-research.com Mixed 2012 Q4 results - slowing growth, higher EBIT margin but lower EPS Revenue growth continued to slow, to 22%. Guidance for Q1 2013 of c.20% growth (with operating profits near break-even) indicates that the slowdown will persist Also, critically in Q4 gross & operating margins jumped, ...... Nonetheless, EPS halved due to higher taxes and less other income & expenses. Again, this was not fully explained, making it very hard to analyse these results. As revenue growth falls below 20% Amazon nears the point of realization where investors discover if it can deliver the profit margins to justify its high valuation. ........ Or put another way, if growth dips <20% in 2013 and margins don't soar, then panic. - Total Q4 Revenue slowed to +22%, to $21.3 bn. Unit growth also slowed, to 32%. Investment thesis - Profits will be harder to achieve than expected Amazon has an impressive track record ….. The fundamental problem is that (so far at least), Amazon's larger size from rapid growth is not generating higher margins due to economies of scale and thus any meaningful operating profits. ....... Despite being a substantial company, Amazon has a profile & valuation ratios of a growth stock. It is very difficult to value Amazon as it is unclear what margins might be achievable when growth finally slows (in 2013 perhaps?). Valuation multiples are exceptionally high. ...

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