Elazar was launched in 2004 by Chaim Siegel and has served famous hedge fund clientele who demand a keen understanding of drivers of individual companies and financial markets. Chaim twice worked for renowned trader Steve Cohen of then-SAC Capital (now Point72). He was also a partner at JLF Asset Management which was funded by George Soros. Previously he was one of seven analysts on a $13B mutual fund at Morgan Stanley Asset Management. Elazar Advisors publishes its research into the Reuters/Refinitiv Institutional Platform and Factset where Elazar's earnings estimates are factored into the Street earnings numbers.  Elazar's research is used regularly by fundamental and algorithmic traders and investors at some of the largest mutual fund and hedge fund managers in the world. Chaim has been a 5-Star top ranked analyst in Tesla and other big cap tech companies. Try us with a  free trial here . All investments have many risks and can lose principal in the short and l

Amazon: Uncovering The Hidden Profit Model Driver: Buy Rating

Amazon (NASDAQ:AMZN) reported earnings Thursday after the close. AWS revenues accelerated. Company profits jumped. But there was one sleeper line-item that is the big change in this story that could make earnings even more powerful. And we'll show you.


AWS (Amazon's cloud division, Amazon Web Services) has been the profit story for Amazon. As long as AWS isn't dropping prices in a quarter it's driving most of the profit growth.

This quarter however you had both AWS and Amazon's "North America" divisions both drive growth. 

North American Retail profits jumped 93% in Q1 which was the fastest growth in about two years.  If you think it was Whole Foods, it could have been but the profit growth was much higher than Q4 when they had the first full quarter of Whole Foods. We'd also guess they are giving away the store at Whole Foods hurting profits.

We think the profit driver was advertising. 

If you go to page 13 of their release they have an "other" line-item. That line-item "primarily includes sales of advertising services." That tiny line-item way down on page 13 reported over $2B in sales up over 100% year-over-year. 

Here's what they said about advertising on Thursday's earnings call, 

"It's now a multibillion-dollar program and growing very quickly."

Not bad right?

What are the margins of online advertising?  Facebook's operating margins approach 50%. Google's operating margins are about 25%. That would mean that advertising profits drove about $500 million to $1 billion of Amazon's profits in Q1. That's out of total company operating profit $1.9B in operating profit in Q1. That would be meaningful.

Other than AWS, advertising is becoming super important.

Let's look.

North America Margins Accelerating

What's exciting is when you look at the underlying 2-year margin trend. That reveals the potential power in this Amazon business model.

The two-year check takes this year's growth rate plus last year's growth rate. It's a simple analyst tool that smooths out one-timers to spot an underlying trend.

Look at what we discovered. Q2'17 was down 2%, Q3  down .8%, Q4 down .1% and Q1 up .3%.

Do you notice a trend there? 

That two-year trend is getting better. We'd guess it's going to continue to rise.  You've now discovered what we believe is the hidden power in the Amazon earnings model.


Traditional retail is now even more dead. Think about it. They have to sell things at a profit. Amazon doesn't. They can sell advertising and subscriptions and give the product away. That advertising model is starting to show up and was a big driver to their profits. If it continues there is big upside potential for Amazon's profits and stock price.


All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. Model portfolio trades and positions are hypothetical to be used for directional analysis and ratings purposes. Elazar and its employees do not take individual stock positions to avoid front running and other potential customer related issues.

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