After the META reaction, which is proving right the Hedgeye Short Call by our Communications Head Andrew Freedman, we are getting lots of questions on our thoughts around AMZN.
AMZN is currently a Best Idea Long. We went bullish on the TREND setup and made it a Best Idea Long around the August print on the multi-quarter rate of change acceleration and upwards revision cycle to come; calling for the stock to make new all time highs. That call has been right, though we are certainly in the later innings of that call.
Near term setup is a bit tougher, as we think numbers are still headed higher (expecting a 1Q EBIT beat and EBIT guide straddling the street for 2Q, with 10% to 20% upside in EBIT vs consensus for the year), but rate of change is likely to slow on topline within the next couple quarters. Generally you want to be outsized Long AMZN when revenue and gross profit growth are accelerating. So that setup on the quarterly TREND is mixed vs being clearly bullish over the last couple of prints.
With the negative sentiment inflection around the META print, we think the risk/reward suggests owning AMZN into the print.
AWS rate of change is accelerating. Margins are still expanding rapidly and we see EBIT growing 60%+ for the year. In that context, since we made AMZN a Best Idea Long, the NTM EBITDA multiple has gone down given how much the numbers have gone up. If the stock was at an elevated multiple, we'd have more concern around the rate of change risk on this print.
We think the negative read from META was contracting profit growth via higher investment levels, whereas the reads from Amazon don’t suggest that type of event. High margin businesses are outgrowing the core, the company is still managing/reducing costs as evidenced by the change in the physical store strategy and some other recently announced layoffs. Yet it is still investing in big growth initiatives that should drive outsized long-term revenue and profit growth as evidenced by the new Indiana data center just announced.
The Market Signal from our CEO Keith McCullough is still Bullish TREND, with now Bearish TRADE. $168 being the important TREND level to hold on closing price.
A note, Andrew Freedman (who nailed the META short into this print) is bullish on GOOGL. If GOOGL has a good print today it would likely be bullish AMZN, given the cloud and advertising businesses there more closely reflect parts of AMZN than META does. That event could potentially change the trade into Tuesday.
