Amazon (Buy, $1,100 PO) Stock view: Positive on retail, but street increasingly focused on advertising For Amazon’s retail business, sentiment remains positive despite some modest 4Q revenue weakness vs expectations. We expect the retail business to remain strong in 1Q with stable growth as core drivers (Prime, delivery infrastructure advantage) remain intact. The lack of early tax refund support is a potential 1Q risk, but we would expect any delayed spending to bounce back in March or 2Q. Continued store closures by traditional retailers should aid the online shift throughout 2017. Finally, it appears Amazon has become stepped up advertising on its site, with more sponsored listings, which could be a source of revenue upside in 2017. Amazon had new revenue disclosures in its 10-K, and the ad revenue line significant accelerated in 2016. For AWS, we expect some additional q/q revenue deceleration and q/q declines in margins. We note that AWS growth in 4Q was below our estimates, and the effects of 4Q’s late price cuts should drive additional deceleration in 1Q. Microsoft and Google are well capitalized competitors that are significantly increasing cloud investment (see Battle in Seattle for industry update), so the Street sentiment could shift more cautiously on Amazon on a slight miss. Margins continue to be a risk, but top line trends seem to be the biggest driver of sentiment and advertising optimism has grown. Amazon’s current investment cycle began in earnest in 3Q’16, and we expect the elevated pace of investment to persist through 3Q’17. Margins may see y/y declines given: 1) Ongoing investments in fulfillment center build out (given fulfilled unit growth of 40% in 2016), 2) Digital content and related marketing, 3) Prime benefits (Now and Fresh), 4) Alexa/Echo, and 5} India. We think the Street is constructive on these initiatives, and will move past lower y/y margins concerns if top line growth is stable in 1Q. Key theme/metric(s)