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Editor's Note: This is an excerpt from a research report written earlier today by Hedgeye Retail Sector Head Brian McGough. Click here for more information on how you can subscribe to our services.

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It's tough to say that this was a 'great' quarter for AMZN, as the company still lost money despite adding $3bn in revenue and improving gross margins by 340bp. But relative to expectations, it was killer.

Specifically, EBIT came in at $255mm, which compares to guidance of -$450mm to +$50mm. That's particularly impressive given that the international business posted a 1600bp hit in reported sales growth due to FX -- the biggest hit ever for AMZN. 

Amazon: $15 in EPS by 2018? | $AMZN - 1 amzn 

When all is said and done, we think that the AMZN debate is finally getting interesting. It's been a stock that trades at a stratospheric multiple of earnings (about 370x today), but invests and competes away its profit/earnings to gain share. By our math, today AMZN accounts for about 15% of all online spending. At some point sales growth will slow, share will find its final resting place, and AMZN will blow-out its margins. That's when we see the real earnings power of the company. Looked at a different way, Wal-Mart accounts for about 7% of Brick & Mortar US Retail Sales. Based on that metaphor, one could make the argument that AMZN is twice as dominant in its core market as WMT is.

The bull case as we see it is that AMZN tops out at 20-22% of Online Retail Sales over 3-4 years, and takes margins up to 6% -- something that's well within reason. This year the company will earn something south of a buck. But a 6% margin in 2018 would result in EPS of about $15. That's about 25x earnings based on today's price. Not bad for one of the most dominant companies to ever do business on this planet.

Amazon: $15 in EPS by 2018? | $AMZN - z amzn