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Amazon Investors Shouldn't Fret

Amazon Investors Shouldn't Fret

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.

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About the Author

RJ Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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