Strategic trade
Trade view / 29 March 2016 at 10:08 GMT

#SaxoStrats: Strong momentum augurs well for Amazon

Head of Equity Strategy / Saxo Bank
Instrument: AMZN:xnas
Price target:
Market price:

We were stopped out on our earlier long Amazon position due to our trailing stop had come too high and we did not preemptively lower it to avoid being stopped out in the last couple of weeks sideways trading.  However, we view Amazon as a core long position and are looking for the share price to go back to $700, so we are entering the trade again. 

Amazon shares were punished this year on global economic slowdown woes and disappointing (less clean) Q4 earnings on Jan 28 with both EPS and revenue missing estimates. Our view was different as the underlying cash flow generation (earnings power) actually rose to the highest level since Q4 2011 showing that years of huge investments into fulfillment centres are paying off and that Amazon is no longer dragged down by its misguided attempt to go into the smartphone market. 

Prime membership was up 51% y/y and AWS revenue growth hit 69% y/y in Q4 taking further market share and bolstering its position as the dominant go-to platform for cloud infrastructure. Amazon’s $107 billion in revenue is just the beginning...


Amazon trades at 59% premium to global e-commerce peers with the 12-month forward price-to-cash-flow ratio at 24.1 compared to 15.2 for peers. The premium is justified as Amazon is relying on a different model than its global peers such as Alibaba and is also branching (even creating) into new industries with its AWS offering. Latest rumours are also indicating that Amazon is looking into integrating parts of its logistics in a step to lower overall costs.

Key risks

Stronger USD and macro slowdown impacting top line growth. Price war in its cloud infrastructure segment (AWS). Short-term higher fulfilment costs due to high Prime growth.


Buy Amazon shares (AMZN:xnas) at market with a trailing stop - the stop price is set at $521.67 (volatility based) with step size of $5.82. Our target is $700 and the expected holding period is set to the end of the year.
price performance

Source: Bloomberg, Saxo Bank


Source: Bloomberg, Saxo Bank


— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more


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