Citi Debunks Amazon.com Bear Case Ahead of Earnings

Amazon.com, Inc. AMZN reports earnings this afternoon. Ahead of that, analysts at Citi – who have a Buy rating and price target of $354 on the stock – addressed bear arguments likely to arise following the report.

In Citi’s view, the stock’s decline in 2014 was based on operating margins coming in below expectations. Citi thinks that further pressure on margins is already factored into the stock price, and the analysts see potential for the company to guide to the top half of operating income – something that could indicate margin pressure is abating.

The Citi analysts also dismiss concerns over foreign exchange, revenue growth and unit growth. On revenue growth, Citi says it is not the right measure to value Amazon with. Instead, investors should look at gross profit or retail gross margin value – both of which are expected to grow.

For unit growth, Citi says that average revenue per user is typically lower in the fourth quarter, due to the nature of customers buying low-ticket items as gifts. Additionally, the growth of Amazon’s tablets and e-readers is playing a role since low-ARPU units like digital app downloads are included in that metric.