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Amazon’s Blowout Q1 Earnings Are Reminder Of Stock’s ‘Huge Potential’

Investors rewarded e-commerce leader  Amazon.com ( AMZN ) after the company late Thursday posted  Q1 earnings  that handily beat expectations, as Amazon Prime and the Amazon Web Services cloud business continued to roll. In midday trading on the stock market today , Amazon stock rose 9.3% to about 658 after hitting 669.98 earlier. The company’s stock more than doubled in 2015 but — much like the rest of the market — struggled in early 2016. The stock plunged three months ago after the company missed Wall Street’s outsized Q4 expectations . Jefferies analyst Brian Pitz bumped its price target 11% on Amazon, to 865. “While AMZN continues investing in Prime, Q1 results were a nice reminder of its huge potential,” Pitz wrote in a research note Friday. “Increasing Prime usage drove revenue and unit growth acceleration as broad product selection (enhanced by Fulfilled By Amazon sellers), digital content and flexible delivery options attract users to Amazon and keep them buying.” IBD Take: Amazon.com has a mundane Composite Rating but still looks good. Check out Stock Checkup.  John Blackledge, a Cowen analyst, upped his price target to 830 from 750, citing the company’s guidance — which was largely above what Wall Street expected — and the fact that Amazon of late has posted sales near or above the high end of its guidance. Amazon Web Services, the company’s cloud computing operation, is slowly dwarfing its Amazon’s core e-tail business. According to Wall Street Journal financial editor Dennis Berman, AWS is more profitable than the company’s core operations, though it accounts for only 15% of the sales. “Could AWS be worth more than IBM?,” he tweeted Thursday . IBM Q1 sales were $18 billion. AWS revenue spiked 64%, to $2.57 billion. Alphabet ( GOOGL ), via its Google unit, and software giant Microsoft ( MSFT ) have aggressively been competing with AWS.

A Google-Fiat Chrysler Self-Driving Alliance Is So Crazy It Could Work

Alphabet ( GOOGL ) is in late-stage talks with Fiat Chrysler ( FCAU ) about a partnership regarding autonomous vehicles, according to multiple reports Thursday. At first glance, it seems like a crazy idea. Why would Alphabet’s Google want to team up with Fiat Chrysler. The automaker has invested very little in autonomous technology, largely sitting out the Detroit-Silicon Valley autonomous arms race involving the likes of Alphabet, Tesla Motors ( TSLA ), General Motors ( GM ), Toyota ( TM ), Ford ( F ) and Apple ( AAPL ). Indeed, Fiat Chrysler is unusually dependent on high-margin, gas guzzling Jeeps and pickups. And its major brands are usually at or near the bottom of quality surveys. But Fiat Chrysler has the virtue of its defects. Alphabet has sought alliances for years with major automakers on self-driving cars, lacking any experience in mass-producing vehicles or handling a far-flung dealer network. Fiat Chrysler CEO Sergio Marchionne has been looking for industry alliances or mergers to beef up the size of his company. Many experts believe that midsize companies such as Fiat Chrysler will have trouble investing enough — and spreading out those costs on sufficient sales — to keep up with global giants. Simply put, Fiat Chrysler needs Google more than General Motors. GM has made several related acquisitions and has invested in Lyft as part of an alliance with the ride-hailing service that involves autonomous efforts. As as a result, Alphabet’s self-driving arm might be able to drive a better bargain with Fiat Chrysler. Also, AutoExtremist.com , which first reported on the story, said an alliance might include an autonomous version of Chrysler’s Pacifica minivan. Apple, Tesla News Separately, Apple may have dropped some Apple Car hints Thursday in an SEC filing stating that “off-balance sheet obligations” were up 75% year over year to $12 billion, with some of the spike possible due to Apple’s “Project Titan car efforts. Tesla Motors reports first-quarter earnings next week, as does Mobileye ( MBLY ). Mobileye’s camera-based systems are being used by Tesla and several other major carmakers for semi- and fully autonomous car efforts.

Amazon Storms Past Earnings Views, And Buy Point, On Cloud Gains

Amazon ( AMZN ) reported its highest sales growth in nearly four years Thursday, while continued robust gains at its cloud-computing unit and merchandise operations also point to a strong current quarter. The e-commerce powerhouse swung to a first-quarter profit of $1.07 a share, which crushed the consensus earnings estimate of 58 cents, and swinging from a loss of 12 cents a share a year earlier. Revenue jumped 28% to $29.1 billion, ahead of the $28 billion view. Amazon sees total Q2 revenue of between $28 billion and $30.5 billion, largely above Wall Street forecasts of $28.3 billion. That would be a 26% gain at the midpoint. Shares jumped more than 12% in late trading, positioning the stock to blast back through its buy point of 603.34 when trading begins Friday. Amazon closed down 0.75% to 602 on Thursday. The earnings beat is likely due to businesses buried within Amazon, such as its cloud computing division, ChannelAdvisor Executive Chairman Scot Wingo told IBD, adding that its third-party marketplace had a significant effect on Q1 profits too. Amazon Web Services (AWS), the company’s cloud-computing division, saw revenue soar 64% to $2.57 billion. AWS was expected to post $2.54 billion in sales, according to FactSet. AWS has been closely watched by investors since the company began reporting its sales separately. “Once again, Amazon Web Services exhibited significant growth, with revenues up $1 billion. However, the more impressive metric is margin, which roughly doubled to 23.5%, generating over $600 million, or roughly 60%, of Amazon’s total operating income,” Moody’s analyst Charlie O’Shea said in an email. Though AWS is a runaway leader in cloud computing, Alphabet ( GOOGL ), through its Google division, and Microsoft ( MSFT ) are mounting fierce competition. In its earnings release last week, Microsoft said its annualized run-rate for the cloud is over $10 billion. Meanwhile, Amazon’s electronics and general merchandise category was also strong, Wingo said. “In North America it grew 32%, and 33% internationally — it’s an acceleration over the holiday period, which is amazing.” Amazon’s Prime Now one-hour delivery service may have accounted for the acceleration, or at least part of it, Wingo said. With its latest expansion into Tampa, Fla., Prime Now covers 42% of the U.S. Amazon has called its expedited shipping options “difficult and expensive” but has said shoppers love them. In previous quarters, shipping costs have weighed on earnings, but Q1 growth in total expenses lagged topline gains: 25% vs. 28%. Free cash flow minus principal repayments increased to $3.5 billion from $1.5 billion in the year-earlier quarter. Free cash flow can be useful to determine whether Amazon sales are growing fast enough to cover the big bets CEO Jeff Bezos makes on things such as data centers, fulfillment centers and new product lines. Working together, the Prime loyalty program, third-party market and Fulfillment By Amazon have created flywheels that further drive profits. “Amazon is taking share from everybody at this point,” Wingo said. E-commerce as a sector is growing at about 15%, while brick-and-mortar retail grow by between 2% and 3%, he estimated. Amazon rival eBay ( EBAY ) posted 5% growth, but only 3% came from the marketplace. Bezos also touted the company’s hardware offerings, such as the Fire TV Stick, Fire Tablets and Echo, but Wingo said that at this point, the sales for the family of Echo products are not significantly boosting electronics and general merchandise sales. “We’re building premium products at non-premium prices, and we’re thrilled so many customers are responding to our approach,” Bezos said in a press release. OK