Amazon.com Inc (NASDAQ:AMZN) reports its fourth quarter results on Thursday, with analysts expecting higher revenues on strong demand over the festive season and the acquisition of Whole Foods.
Analysts at Wedbush predict revenue of US$59.27bn, compared to the consensus forecast of US$59.83bn and the company’s guidance of US$56bn-US$60.50bn. Amazon reported revenue of US$$43.7bn the same quarter a year ago.
READ: Amazon.com says enjoyed strong holiday season, with Prime membership levels rising
Wedbush said revenues were boosted by a better-than-expected holiday season, a US$4.4bn contribution from Whole Foods and continued positive momentum for third-party seller services, subscriptions, and Amazon Web Services.
“Amazon Web Services (AWS), Fulfillment by Amazon (FBA), and ads should drive steady margin growth, with Prime driving overall retail revenue growth,” it said.
“Margin expansion will likely be tempered somewhat by increased spending, while nonetheless leaving significant room for earnings growth.”
Wedbush expects operating income to come in at US$1.7bn, compared to market estimates of $1.5bn and the company guidance of US$0.30bn to US$1.65bn and following US$1.3bn last year.
Earnings per share is forecast to rise to US$2.20 from US$1.5 last year, against the consensus of US$1.84.
Amazon to spend more as it battles with Netflix
Looking ahead to the first quarter, Wedbush sees revenue of US$47.47bn and operating income of US$1.0bn.
It reckons Amazon will spend more on its video content in 2018 as it continues to take on Netflix and other competitors.
“We expect Amazon’s content spend to grow from an estimated $4.5bn in 2017 to $6.0bn in 2018, implying operating margin contraction,” Wedbush said.
In comparison, Netflix expects to spend US$7.5bn to US$8bn on content in 2018 with a free cash flow burn of between US$3bn and US$4bn, implying a much higher total spend.
Amazon opens new fulfilment centre in Rugby
Amazon is also investing in research and development, and fulfilment centres. On Monday it said it would open a new fulfilment centre in Rugby, central England, increasing its workforce by 400 people.
Rugby will be the fourth Amazon fulfilment centre in the region. Amazon opened centres in Coalville and Daventry in 2016 and another in Rugeley in 2011.
“Ongoing investment in R&D and fulfilment centres limit earnings visibility, but given Amazon’s exceptional revenue growth and consistent gross margin expansion on a y-o-y basis, we see ample room for Amazon to simultaneously invest and grow its operating margins going forward,” Wedbush said.