I Was (Happily) Wrong About Amazon | Business Markets and Stocks News

Just a little over a year ago, Amazon (NASDAQ: AMZN) stock received its first $1,000 price target. Sanford Bernstein’s Carlos Krijner said gross profit expansion would drive earnings higher, and the stock price would follow. At the time, I agreed with Krijner’s thesis but said it would take a lot longer than 12 months for Amazon’s efforts to have the impact he suggested.

A year later, Amazon’s stock price hit $1,000. I was wrong, but with my (small) stake in Amazon, I couldn’t be happier.

Here’s what Krijner got right, and what investors can expect from Amazon stock going forward.

AWS was the biggest growth driver

One of the biggest earnings growth drivers for Amazon has been its cloud computing division, Amazon Web Services. Krijner said it was Amazon’s biggest near-term catalyst, and he was dead on.

While growth of the unit has slowed, Amazon still managed to generate 43% more in sales than last year. That’s well above the company’s overall top-line growth, and AWS now accounts for more than 10% of total revenue.

That’s important because AWS boasts much higher profit margins than Amazon’s retail segment. In the first quarter, AWS posted an operating margin of 24.3%, up from 23.5% last year. Last year, AWS notably managed rapid top-line growth while expanding its operating margin 11 percentage points. Operating margin expansion slowed considerably this year, but it’s still trending higher.

That said, AWS appears to be moving from two profit growth drivers to just one, as operating margin stabilizes. Competition from Microsoft and Google ought to continue to put pressure on Amazon’s pricing, which it can offset as it scales operations. With revenue growth still strong, albeit slowing, AWS should continue to boost Amazon’s bottom line nonetheless.

Fulfillment by Amazon is a…

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