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Monday, May 14, 2018

Amazon's New Earnings Driver Confirmed

We recently identified Amazon's secret new earnings driver, advertising. Discovering it made a big difference in our earnings trajectory and earnings model. Amazon just confirmed that advertising is about to get even more important.

The "Other" Line Item Drives Upside Surprise

In Amazon's recent earnings release on Page 13 their "other" line-item was up over 100%. That was advertising and it accounted for $2B. A pure margin business driving their more-capital intensive North America division improves the earnings model and margin profile.

It gave us visibility that the 93% jump in North American profits was not a fluke.

And we have confirmation...

Amazon Taking on Google

Bloomberg caught Amazon offering a retargeting tool to merchants competing with Google and Facebook that have ads follow potential customers around the web.

Alibaba's core ecommerce business has allowed merchants the ability to rise in search through ads for years.  Amazon's now full steam ahead in this "newer" business driver.

Ad Model Earnings Driver Confirmed

Matching the Bloomberg news in context with our recent earnings driver findings confirms that Amazon is expanding its arsenal in the ad space. And that's a big plus for earnings potential.

They were proud to say on the last earnings call, "It's now a multi-billion dollar program and growing very quickly."

Really we shouldn't be surprised that they are racing to exploit advertising synergies with their merchants.

Conclusion

We have $24.50 in EPS for 2019 versus the Street's $19.89.  Because of this added earnings driver our earnings for 2018 are expected to be up about 200%. We think this stock still has a good shot at going nuts to the upside.



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