High Expectations from Wall Street in Q3 [AMZN]

The story of Q3 for Amazon was: strong sales growth and blowout profits, but even more elevated expectations.
Overall sales of $56.6B were slightly lower than the $57.1B that investors expected. The reason: growth in its International and Amazon Web Services (AWS) segments came in a bit less than Wall Street analysts had forecasted.
In North America, Amazon's scale and flywheel continued to turn. It posted sales of $34.4B (up +35% year-over-year) and profit of $2B, much better than Wall Street's estimates. The U.S. retail consumer is actually holding up very well despite shaky global markets.
Its overseas Amazon.com business and its cloud-computing division, AWS, are grew at healthy rates. However, analysts had too high of hopes. The International business grew +13%, weaker than the U.S. AWS continued to show strong sales growth of +46%, but again, it was shy of expectations.
These types of short-term reactions by Wall Street -- selling a stock due to a "miss" on quarterly estimates -- are foolish in our view. It's classic short-term bias. We don't believe anyone in Amazon's management team cares about "beating" quarter results.
On the bright side, the historically unprofitable Amazon posted very strong profits and earnings. Remember the company is known for investing most of its profits in growth initiatives, resulting in low reported earnings.
Q3 showed that Amazon can scale its profits even while investing much of its cash flow for growth. They posted earnings per share of $5.75, much better than the $3.08 that Wall Street predicted.
The widening profits are largely driven by the growth of Amazon's high-margin businesses, including its cloud, advertising and third-party seller services.
Overall, what investors are most concerned about is Amazon's 4Q guidance. The 4th quarter is Amazon's most important period of the year -- it includes Black Friday and the holiday shopping season.
Amazon management forecasted 4Q sales of $66.5B-72.5B, lower than analysts' estimate of $73.8B. That represents 10-20% annual growth -- strong, but weaker than the high expectations investors held. Their profit forecast was also weaker than expected.
The stock is down -5% after hours due to this "miss" against high expectations.
We believe "one quarter doesn't make a trend" and remain bullish on the company. These types of near-term declines often happen for a heavily-owned, widely-loved stock like Amazon.
Despite the price action, the market is implying that Amazon's intrinsic value just fell -5%. What do you think?
As Bezos says, "we're not planning for next quarter or even for next year... we're planning for 2021 right now. We live in the future, not the present."
Oct. 25th, 2018
As of this writing, AMZN was a portfolio holding of Titan Invest. This security may cease to be a portfolio holding at some point in the future.
The statements, opinions and analyses presented herein generally are provided as general information. Opinions, estimates and probabilities expressed in Titan research constitute the judgment of the author as of the date indicated and are subject to change without notice. While all the information prepared in the foregoing articles is believed to be accurate, Titan Invest (“Titan”) makes no express guarantee as to the completeness or accuracy of, nor can it accept any responsibility for errors appearing in, the foregoing articles. Other events which were not taken into account may occur, and any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. The information contained herein is not, and should not be construed as, an offer to sell or the solicitation of an offer to buy any securities. In addition, nothing contained herein is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. While Titan is a federally registered investment adviser, the information presented is not part of the personalized, proprietary algorithmic based investment advice provided by Titan to its advisory clients. Rather, the information presented constitutes educational and informational materials meant to better inform market participants, including, without limitation, current and potential advisory clients of Titan. Prior to making any investment decision, you are advised to consult with your broker, investment adviser, or other appropriate tax or financial professional to determine the suitability of any investment. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy discussed herein will be profitable or equal any historical performance level(s). Neither Titan, any of its affiliates, nor each of their respective officers, directors, members, agents, representatives, employees, or contractors (collectively, “Titan Parties”), shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided herein. You assume all risks of loss resulting, directly or indirectly, from the use of the information contained in the foregoing articles. By accepting receipt of the foregoing articles you acknowledge and agree to hold harmless the Titan Parties from any and all claims, actions, damages, losses, liabilities, costs and expenses of any kind whatsoever, including but not limited to any claims of negligence, arising out of, resulting from, by reason of, or in connection with the use of the information contained in the foregoing articles. Securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore no portion of the above shall constitute a waiver or limitation of any rights you may have under any federal or state securities laws.
Certain articles discuss historical performance of a particular issuer over a limited period of time. The historical performance discussed in such articles represents gross performance of the issuer over the limited period of time depicted, and is not indicative of any actual portfolio or investment returns of any account. Any such returns, even if an account was invested in the security discussed over the limited period of time depicted, would be reduced by fees and expenses paid by any such account. The foregoing articles contains certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results. Comparable companies, strategies, portfolios and indices may be included in the foregoing articles only as a context reflecting general market results during the depicted period or as of the specified date. The comparison of any company, strategy, portfolio or index to a single other company, strategy, portfolio or index may be inappropriate because the relevant assets, strategies and level of risk may vary materially from the comparable company, strategy, portfolio or index as a whole. Titan uses a proprietary algorithmic strategy in selecting recommendations to advisory clients. Issuers and/or securities discussed herein may be, and often are, held by clients of Titan in their investment portfolios. Any single security or issuer identified in herein will not represent all of the securities purchased, sold or recommended for advisory clients of Titan. Please see Titan’s website and Program Brochure for more details on security selection for advisory clients. Before investing, consider your investment objectives as certain investments are not suitable for all investors. Past performance is no guarantee of future results.
© Copyright 2018 Whisker Technologies, Inc. All rights reserved.