The online e-commerce behemoth Amazon (AMZN) reported lackluster Q4 results after the market closed yesterday. The company missed our estimates on both the top and the bottom line, dampening investor sentiment.
Earnings per share came in at 51 cents. Though earnings more than doubled the prior-year level of 21 cents, it fell well short of the Zacks Consensus Estimate of 71 cents. Revenues climbed 20% year over year to $25.59 billion but missed the Zacks Consensus Estimate of $26.05 billion.
The sluggish performance was mainly due to weak revenue growth in the international market and higher holiday shipping costs. Notably, international sales slowed to 13% in Q4 from 21% in the year-ago quarter.
The company expects revenues to grow 13%–24% to the range of $18.2–$19.9 billion for the first quarter. The high end is above our current estimate of $19.7 billion, suggesting optimism in the AMZN growth story.
Amazon is planning to increase the annual price of its popular service - Amazon Prime - by $20 to $40 to meet rising fuel and other shipping cost. Currently, the service charges $79 per year from customers.
This hike would be the first in nine years and could boost the company’s profitability going forward. However, the risk of moderating subscription renewals at a higher price could be a drag on subscriber growth.
Market Impact
Based on the lower-than-expected numbers, AMZN shares tumbled as much as 13% in after hour trading on Thursday. However, the shares recovered sharply after the company revealed its plan to raise the Amazon Prime price. The stock is down nearly 4.5% at the close of after hour trading, while it was around the $370/share mark in early Friday morning trading.
ETF Angle
The roller-coaster ride puts some ETFs having higher allocation to this Internet giant in focus for the coming days. Investors should closely monitor the movement of these funds and take opportunity of any recovery in the AMZN price.
This is especially true given that AMZN currently has a Zacks Rank #2 (Buy) and a solid Zacks Industry Rank in the top 39%. This adds to the bullish outlook and suggests good trading ahead.
Market Vectors Retail ETF (RTH)
This fund provides exposure to the 26 largest retail firms by tracking the Market Vectors U.S. Listed Retail 25 Index. Of these, AMZN takes the top spot at 8.86%.
The ETF has a certain tilt toward growth stocks, accounting for more than half of the portfolio, while sector wise, specialty retail has one-third of the shares.
The product has amassed $38.3 million in its asset base and charges 35 bps in annual fees. Volume is moderate as it exchanges nearly 52,000 shares per day. RTH is down over 5% in the year-to-date time frame and has room for upside given the Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘Low’ risk outlook.
PowerShares Nasdaq Internet Portfolio (PNQI))
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 80 stocks in its basket with AUM of $307.8 million while charging 60 bps in fees per year. It trades in moderate volumes of nearly 67,000 shares a day.
Amazon occupies the fourth position with a 7.68% allocation. In terms of industrial exposure, Internet mobile application makes up for more than two-thirds of the share in the basket, followed by Internet retail.
PNQI lost nearly 1% so far this year and currently has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘High’ risk outlook.
First Trust Dow Jones Internet Index (FDN)
This is one of the most popular and liquid ETFs in the broad tech space with AUM of nearly $2 billion and average daily volume of more than 320,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 57 bps in fees per year.
In total, the fund holds 41 stocks in its basket with Amazon taking the second position with a 7.41% share. From a sector look, Internet mobile applications accounts for more than half of the portfolio while Internet retail and software & programing receive double-digit exposure. The ETF is up about 1.3% year to date and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘Medium’ risk outlook.