Amazon.com Inc.

NASDAQ:AMZN   3:59:59 PM EDT
3,223.13
+32.64 (+1.02%)
4:27:27 PM EDT: $3,219.00 -4.13 (-0.13%)
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How Amazon is Taking over Technology



Fundamentals  

As of right now, AMZN is likely the most feared technology company other than Facebook (FB) in that it can enter any market at any time and grab market share quickly without concern for earnings. Nothing is unreachable for the firm, from supplanting Netflix as the leading provider of streaming video to supplanting FedEx and UPS as the most powerful logistics company in the world.

"Expect your Amazon deliveries within 30 minutes via drones"


Further, the company is now competing with Apple directly with tablets and TV.


AMAZON IN CHARTS
In the latest earnings report on October 22nd, the company crushed every possible measure of profitability. Revenue hit $25.4 billion versus estimates of $24.9 billion. Here's the ridiculous all-time revenue chart for AMZN:



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That's actually a real chart, not some made up pattern. For the first time ever, AMZN broke $100 billion in revenue for a trailing-twelve-month (TTM) period. Revenue (TTM) was up 18% year-over-year, 23% year-over-year on a quarterly basis and a staggering 43.4% over the last two-years (TTM). Further, operating income rose to $406 million from a loss of $544 million last year.

As retail sales in the US putter along at a 1.7% growth-year-over-year, Amazon revenue is growing several times that level and it's growing its market share impossibly large at an impossibly fast pace.


Amazon's North American gross merchandise volume has captured 36% of all retail growth this year through September, estimates Wells Fargo analyst Matt Nemer, excluding vehicles, fuel and food/beverages. That's up from 29% in Q4 2014.
(Source: IBD).


Here's a chart that plots every technology company above $50 billion in market cap and simply ranks their total revenue over the trailing-twelve-months (TTM).



Yes, Amazon now has the second largest revenue of any technology company.

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But now, earnings are actually starting to happen (as opposed to losses). EPS came in at $0.17 versus estimates of a loss of $0.17, and that's up from a loss of $0.95 per share in the year ago period. As we will see below, Amazon's massive improvements came from the 50%+ growth in Amazon Web Services and a ridiculous growth in Prime users.

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As Amazon moves toward higher margin subscription services like the Cloud (AWS) and Prime, its gross margins have exploded higher even as the revenue base has grown.



Amazon Prime (and AWS) is simply the future for this company and memberships continue to grow at 50%. Wells Fargo analyst said about Amazon Prime:

If I had to isolate one (reason for faster growth), it's the adoption of Prime and utilization of Prime,
(Source: IBD).


An RBC survey in September revealed that 40% of Amazon might be Prime members. That's 60-80 million people paying $100 a year or $6 billion to $8 billion in membership fees alone. Better yet, that same survey reported that 75% of Prime members said they bought more from Amazon after joining Prime. About half the Prime members said that they spend $800 or more a year at Amazon, vs. 16% for non-Prime customers (Source: IBD).

The Prime streaming video service is now a legitimate competitor to Netflix.

As revenue and margins have both expanded, cash from operations has now smashed new all-time highs.



In the trailing-twelve-months Amazon has generated nearly $10 billion in cash from operations.

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But the company is insatiable when it comes to innovation, whether it be its 173 logistics facilities worldwide and drone delivery or its new rocket that successfully went into space and landed -- beating Elon Musk's SpaceX to the task. In our final chart we can see that Amazon is in fact spending more on research and development than every other company in the world other than Google.



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Yes, this chart includes every industry in the world. You can see JNJ (pharma) and AMGN (biotech) on the chart as well

The BusinessInsider reported that Amazon may be 'secretly' working on a team that will help it replace FedEx and UPS. The goal here is simple, lower reliance on third party shippers. But this is where we start to get absurd again. Read this:

"The online retailer and fulfilment provider's objective is to guarantee delivery within a 90-minute to two-hour window."
(Source: BusinessInsider).


Are you kidding me? How many people will sign-up for a Prime membership if delivery is measured in minutes? But it gets better.

Amazon is already testing "Prime Now" which is a service that would offer delivery in under 60 minutes. If that sounds ridiculous, try this: The company has already launched it in 17 cities, including San Francisco. Yeah, it's actually happening. Amazon now has 173 logistics facilities worldwide.

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Why Does this Matter?
Prime becomes a better value proposition for Prime. margins will increase. But, how about this: Amazon will turn into a powerhouse transportation logisitics company. That fancy sentence means the company has a new business line if it wants it -- to deliver faster than any company ever, more efficiently than any company ever, and you may (n the near future) throw away your fedEx and UPS accounts for all things, not just Amazon.

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Conclusion
Amazon's revenue is growing at breakneck speed even as the revenue base has grown to now over $100billion in the last year. Margins are growing as business lines Prime and AWS are seeing growth rates in the 50%+ range -- we're talking small cap growth for a mega cap company in segments that drive essentially all of the profitability. This has led to massive cash from operations growth.

The company is going to break transportation logistics in half with its delivery services that will be measured in minutes rather than days. All of this growth is happening as the firm's balance sheet is strengthening, now showing over $14 billion in cash and equivalents, up nearly half a billion from the quarter before even though the copany spends more on R&D than every other conmpany in the world not named Google.

This is just a part of the full Amazon research write up and just one of the several fantastic reports CML Pro members receive weekly. Join Us: Get the Most Advanced Visual Tools, Data and Stock Research