R.J. Hottovy: Heading into Amazon's first-quarter results, we believe investors should be focused on three areas: one, the pace of the company's revenue growth; two, the level of the company's investments; and three, some of the company's earlier-stage businesses.
With respect to revenue, Amazon opened themselves up to questions about the pace of growth during its fourth-quarter earnings conference call, where it guided to 10%-18% growth in the first quarter. This is down from 20% in the fourth quarter and 31% for all of fiscal 2018. While some of the decline can be explained by the shift to third-party sales as well as some disruption in its India market, some investors question whether or not the company is facing more intense competition. While this might be true, we do think the company will come in towards the higher end of this guidance led by a continued shift to a third-party marketplace as well as continued growth within its AWS segment.
Second, investments spent--while management noted that it expects to spend more on headcount, fulfillment, and AWS in 2019, we don't think this necessarily signals the company is going to be returning to low single-digit operating margins this year, down from 5% last year. In fact, we think the business model has evolved the last couple years with businesses such as AWS, third-party sales, and advertising becoming larger contributors that will help to offset these investments and actually lead to modest margin expansion in 2019.
This leads us to our final area of consideration, Amazon's more-emergent businesses. As the company continues to evolve, we think that investors should focus on businesses like advertising, AWS, and third-party sales. Not only do these represent higher margin opportunities for the company, but they also should lead to greater engagement among its customers and vendors as well as open up new areas of revenue growth.
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