Amazon has had two rough patches following its last two earnings releases. The stock fell in October after its third quarter earnings release, and again last week after its fourth quarter numbers. December as a whole was a rough patch too. However, all this presents a good buying opportunity, says one equity research analyst. “Amazon typically experiences some downside follow-through over the day and week after a move lower on earnings, but over the next one and three months, these moves lower have presented very good buying opportunities”, says the analyst, from Bespoke Investment Group.
FINSUM: This is not arguing that Amazon is suddenly some kind of value stock, but if you are thinking of going long anyway, the current environment may represent a good buying opportunity.
There has been a lot of speculation lately, including by FINSUM, that Amazon might buy FedEx. FedEx’s share price could be considered cheap, and it would be a bold and strategic move if Amazon is actually committed to building its logistics business. However, Barron’s is today arguing that Amazon will never buy FedEx. The reasons why are two-fold. The first is that the 10.7x p/e ratio is not actually very cheap, and secondly, because Amazon does not really need FedEx’s capabilities, which have less to do with last mile delivery than they do with “upstream sorting”.
FINSUM: The real question here is whether Amazon wants to build up a logistics business in its own right, not just internal capabilities to serve its ecommerce business. If it does, then it is a smart acquisition. However, it would likely face significant anti-trust hurdles.
That is an eye-opening thought, is it not? Some investors and analysts are arguing that in light of FedEx’s stock being so beat up, Amazon should swoop in and buy the company. Amazon has been building its logistics operations for years, but buying FedEx could give it a big boost if it wants to become a shipping giant. One analyst summarizes it this way, “FedEx is inexpensive at 10.6x and 6.5x forward price-to-earnings and enterprise value to earnings before interest, taxes, depreciation and amortization multiples, respectively … Amazon could make an accretive acquisition of the best global network for a fraction of the cost of building it themselves”.
FINSUM: As mind-boggling as Amazon owning FedEx sounds, this idea appears quite logical and plausible.
Big tech companies got hit badly in last quarter’s selloff. On top of that broad volatility, Facebook has been going through its own particular troubles, most specifically related to the potential impact of its data leaks. However, all the bearishness may be in the past, and right now could be an excellent time to buy the stock, at least according to Jefferies. “FB’s status as leader in Social is unchanged and we see continued upside for FB shares as it digests the social hangover … FB remains a tier 1 platform for advertising spend with Instagram showing positive drivers of growth”, says the bank’s research team. The big growth driver is Instagram, whose revenue is growing at an estimated 60% annually. “We believe over the course of ’19, shares will slowly re-rate as rev growth & margin outlook become clearer”, says Jefferies.
FINSUM: We would tend to agree with this assessment. Despite all the concerns over data privacy, Facebook still has a very solid underlying business that is growing strongly.
Are you looking to find a good investment thesis for Amazon? Look no further than their growing private label business, which could prove a catalyst for expanding margins and share price growth. According to an analyst at Suntrust Robinson Humphrey, “The rise of private labels and exclusives is one of the least understood/most under-appreciated trends within Amazon”. He continued, “This strategy should strengthen the flywheel effect of proprietary offerings/better user experience/higher retention/spend/share gain, and should prove accretive to margins over time”. The profit margins on own-branded products are 7-15% higher than on other branded products.
FINSUM: Because of their huge user base, Amazon is in a good position to benefit from selling their own brand, as they have a ready audience. This will likely improve overall margins as the business expands.
Netflix saw a big selloff on the report of its earnings yesterday. However, don’t be fooled by the market’s reaction, the data was strong. Netflix’s big narrative right now is about whether it can expand internationally. Guess what, international subscriber numbers from yesterday’s earnings blew away expectations, with 7.3m overseas subscribers versus expectations of 6.13m. US subscribers saw a slight miss, which likely caused the price decline.
FINSUM: Netflix does seem like a good buy to us. They are raising prices and growing strongly. We don’t think the price hike will deter many customers.