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Amazon (AMZN) to Post Q4 Earnings: Prime to Play a Key Role

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Amazon (AMZN - Free Report) is scheduled to report fourth-quarter 2018 earnings on Jan 31.

Notably, the company’s shares dropped 25% in the last three months of 2018, marking its worst quarterly performance in a decade. The plunge can be attributed to the market bloodbath caused by global economic slowdown, rising rate concerns and political uncertainty in the United States.

After topping the $1 trillion mark in September 2018, Amazon’s market capitalization is presently near the $802 billion mark (as of Jan 24).

Impressive Earnings Trend

Amazon beat the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 90.8%.

In the last reported quarter, the company’s earnings of $5.75 per share comfortably surpassed the Zacks Consensus Estimate, delivering a positive surprise of 74.8%. The figure also came well ahead of the year-ago quarter’s earnings of 52 cents.

Net sales of $56.58 billion came slightly below the Zacks Consensus Estimate of $57.07 billion. However, the figure surged 29.3% year over year and was within management’s guided range of $54.7-$57.5 billion.

For fourth-quarter 2018, Amazon expects net sales between $66.5 billion and $72.5 billion. The figure is anticipated to grow 10-20% on a year-over-year basis.
 

Amazon.com, Inc. Price and EPS Surprise

Amazon.com, Inc. Price and EPS Surprise | Amazon.com, Inc. Quote

 

The consensus mark for fourth-quarter 2018 earnings stands at $5.49, up by a penny over the past 30 days.

Let’s see how things are shaping up for the quarter under review.

Online Retail Strength to Drive Growth

Amazon is gaining further momentum in the online retail space with the help of its robust delivery system. Prime continues to act as the key catalyst in strengthening its presence in the online retail space. The company’s strong loyalty system, customer friendly offers, robust delivery facilities, and growing movies, audio and video content portfolio are aiding the company’s subscriber base growth.

Notably, Prime members are more loyal and spend double the amount spent by non-Prime members. Moreover, distribution strength, expanding seller base and product offerings are aiding the company’s dominant position in the online retail space. These are also providing Amazon with a competitive edge not only over the likes of Walmart (WMT - Free Report) and Target (TGT - Free Report) but also other tech companies like Google, which is eyeing the e-commerce space.

Amazon has been expanding on a global basis. In the last reported quarter, the company rolled out monthly Prime membership plan in Canada and Mexico, and monthly Prime Student membership in Germany. Further, the company introduced quarterly Prime membership in China. Prime launch in Australia this year was also a significant step. Currently, the service is available in 17 countries.

Amazon is also investing more in fulfillment and sortation along with technology and content. The company has been spending heavily on its new fulfillment centers, which aid online retailers to store and ship products, and handle returns quickly. The ecommerce giant currently has 139 fulfillment centers in the United States.

Further, Amazon has been pumping in more money to ensure faster delivery of goods to customers. Given the increasing engagement of Prime customers, the company is leaving no stone unturned to ensure that their requirements are met. From the span of a day to two hours, two hours to 15 minutes and 15 minutes to two minutes, Amazon has been cutting down on its delivery time for Prime members.

Amazon Prime members already enjoy free two-day and one-day deliveries. Notably, Prime members worldwide have ordered more than 2 billion items throughout 2018 by utilizing the power of its one-day or faster delivery services.

Also, Amazon Restaurants offer one-hour delivery for Prime members. AmazonFresh grocery delivery service can fulfill orders within 15 minutes if users pay $15 per month.

Moreover, the company’s strengthening grocery services via Whole Foods Store is a major positive. Notably, deep discounts and a cash back offer related to Prime continue to help shoppers save significantly on shopping at Whole Foods. Notably, Amazon has started offering a free two-hour delivery service from Whole Food stores to its Prime members.

Notably, the grocery delivery and pick up services from Whole Foods are available in 60 cities and 22 cities, respectively. Additionally, extension of Whole Foods stores in new locations along with these Prime benefits is helping Amazon expand its customer base, which is likely to drive top-line growth.

Record Holiday Season Sales to Drive Top Line

Moreover, Amazon had a solid holiday season. The company stated that “tens of millions of people worldwide” signed up for its Prime service. In the United States alone, more than 1 billion items ordered by Prime members were shipped for free.

Amazon’s initiative to boost customer engagement drove sales. Apart from the online retail platform, the company expanded its physical presence rapidly by rolling out Amazon Go stores at several locations to ramp up sales in offline retail in the season. The cashier less feature of these stores prevented the customers from the holiday shopping rush and long queues.

Further, Amazon 4-star, Amazon Books and Whole Foods Market stores gained traction. Also, deep discounts on items across toys, electronics, groceries, fashion, beauty, kitchen, home furnishings, smart home, gaming, automobile, sports and pet products segments drove performance this holiday season.

Additionally, the company made shopping easier for the customers by equipping Alexa with shopping skills. Also, utilization rate of Alexa Shopping tripled this year from the year-ago tally.

Record breaking sales along with increase in Prime paid membership during the holiday season are likely to drive the top line in the to-be-reported quarter.

The Zacks Consensus Estimate for Net Sales - Online Stores and Net Sales - Physical Stores currently stands at $38.45 billion and $4.68 billion, respectively.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates, if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Amazon has a Zacks Rank #2 and an Earnings ESP of +0.68%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Another Stock to Consider

Here is a stock you may also consider as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Twitter (TWTR - Free Report) has an Earnings ESP of +26.55% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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