R.J. Hottovy: Amazon's third-quarter update was something of a mixed bag. On the positive side, the company posted 6.6% operating margins, which is the highest quarterly margins the company's seen in over a decade. In our mind this shows that a lot of the initiatives and the building blocks behind our longer term margin assumptions, things like AWS and advertising and Prime membership engagement and third party sales, are all clicking.
However on the negative side, the company's fourth-quarter guidance, particularly on the revenue side calling for 10% to 20% growth was a bit of a disappointment. Some of this is structural and accounting related, but it does call in to question about how competitive the field is getting in to.
However I don't think investors should fret. I think if looking forward, the company has now the ability to reinvest in its retail side of the business, particularly with some of these other drivers like advertising and AWS helping to support the overall profitability of this company.
Longer term, this still remains one of the most disruptive players in the consumer space today, and this should make for a long-term investment.