We see Amazon as undervalued. The pickup in expenses this year aren't a concern given the evidence that the network effect supporting Amazon's ecosystem remains strong.
The more important takeaway for investors is that we see signs that the building blocks of longer-term free cash flow may be evolving and becoming more durable, lending further credence to our wide-moat rating.
Our medium-term operating margin assumption of 7% to 8% has long been a function of Prime memberships, third-party sales, and Amazon Web Services, with advertising and Internet of Things/licensed technology offering upside. We believe these pillars are intact--supported by 130 basis points in gross margin expansion--but also becoming more dynamic. For instance, Whole Foods will give Amazon various ways to engage with Prime members (and drive higher membership fees), while adding brands like Nike to the platform could encourage greater adoption of Fulfillment by Amazon and other services among third-party sellers.