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Can Amazon Remain Immune to Mother Nature?

Stocks in this article: AMZN AAPL GOOG NFLX

Amazon Web Services (AWS) likely helped results during the quarter substantially, given that Amazon's cloud computing engine has successfully become part of the infrastructure on which much of the Internet is built. Goldman's Terry believes AWS "revenue growth continued to accelerate into 1Q pushing North American other revenue +53% in 1Q vs. 52% in 4Q." On a sum-of-the-parts basis, Terry believes AWS is worth $37 billion of Amazon's roughly $220 billion market cap, making it an invaluable piece to the Seattle-based company.

Much is always made about Amazon's razor thin operating margins, and that's not expected to change any time, as Amazon continues to reinvest profits into new initiatives, like the recently announced Fire TV, or the just-announced deal with Time Warner's (TWX) HBO to bring certain HBO content to Amazon Prime.
Cantor Fitzgerald analyst Youssef Squali is expecting the first-quarter operating margin will be 0.5%, down 60 basis points year-over-year, as Amazon continues to invest in the business. "While we expect 2014 operating margins to remain under pressure from continued focus on investments (more fulfillment centers, expansion of Amazon Fresh, growing video content, etc.) as well as recent price cuts on AWS, this should be partly offset by the $20 hike to Prime membership fee," Squali wrote in the note. "For 2Q:14, current consensus stands at $19.02B (+21.1% Y/Y) for revenue and 1.1% for GAAP operating margin (+60bps Y/Y)." He rates shares "buy" with a $415 price target.

Amazon has been exceptionally busy in recent weeks, launching several new initiatives that were not included in the first-quarter, so Wall Street will be looking to see if Amazon provides any guidance on these launches.

Though the Fire TV was launched earlier this month, it looks as if it's already off to a great start, as the second most popular item in Electronics, behind Google's Chromecast on Amazon among streaming devices, with Apple TV coming in seventh.

Following the HBO announcement, Wedbush Securities analyst Michael Pachter noted this could make Amazon Prime more appealing than Netflix (NFLX), given the breadth and scope of the deal. "We believe the HBO deal positions Prime Instant Video as a viable competitor and potentially more appealing alternative to Netflix," Pachter wrote in a note to clients following the announcement. "Through the HBO deal, in addition to its own original content, Amazon has the potential to offer close to seventy different series that we believe HBO owns outright, with multiple seasons available for the more successful shows. In comparison, we believe that Netflix's original series figure is closer to ten, with up to only two seasons available."

Pachter, who rates Amazon shares "neutral" with a $330 price target, is expecting Amazon to earn 17 cents a share on $19.52 billion in revenue.

Wednesday, Amazon unveiled Prime Pantry Online, which Amazon describes as a place to take advantage of "Low-priced essentials in everyday sizes, delivered to your home."

-- Written by Chris Ciaccia in New York

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