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The Zacks Analyst Blog Highlights: Amazon, Salesforce, Google and IBM

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For Immediate Release

Chicago, IL –July 25, 2019 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Amazon (AMZN - Free Report) , Salesforce (CRM - Free Report) , Google (GOOGL - Free Report) , and IBM (IBM - Free Report) .

Here are highlights from Wednesday’s Analyst Blog:

Will Cloud Make Amazon (AMZN - Free Report) Earnings Fly in Q2?

Earnings excitement is peaking this week as the biggest public companies release their Q2 financial results. The remaining FANG stock are reporting this week and everyone, and their cousin has an eye on Amazon, which is releasing their Q2 results after the bell Thursday, July 25th.

Amazon analysts are estimating an EPS of $5.29, which would represent 4.3% year-over-year growth. Sales are expected to be $62.57 billion, which would illustrate an over 18% topline appreciation.

AMZN has had large moves in past earnings, but the price action is usually kept to a few percentage points. Amazon has beat their last 7 EPS estimates but only had a positive price action in 3 of those. Revenue figures and management guidance tend to be a better indicator of AMZN’s price impact than EPS.

The Cloud

Most people would assume that Amazon, the largest online retailer in the world, is driving profits with their e-commerce business. Surprisingly this assumption is incorrect. Amazon’s cloud segment, AWS, has recently become the firm’s biggest profit driver with the demand for this technology proliferating.

AWS was an early mover in the cloud space and has been able to take control of the largest market share in the cloud businesses coined infrastructure as a service (IaaS) and platform as a service (PaaS).

AWS has seen over 40% year-over-year growth since 2014 and is expected to be Amazon’s primary growth-driving segment in the years to come. This quarter AWS is expected to grow revenue by 39% and expand its profits by 41% from Q2 last year. Look for AWS sales of $8.49 billion and operating income of $2.31 billion.

The cloud segment has become increasingly competitive, as more and more firms enter the space the fight for market share is accelerating. Microsoft’s (MSFT) Azure is quickly acquiring market share with its triple-digit to high double-digit growth rates since it gained traction in 2015. Azure is still not profitable because of the fierce price competition that has been pinching margins. Other prominent competitors include Salesforce, Google Cloud, and IBM Cloud.

Look for margin expansions in Amazon’s AWS segment in this earnings release.

Recent Performance

Amazon shares have appreciated 32.7% so far in 2019, outpacing the S&P 500’s 18.3% returns. The stock has shown long-term investors prolific growth, with its 5-year return exceeding 500% and its 10-year growth is over 2220%. Expectations remain strong for AMZN and analysts have continued to raise EPS expectations, positioning this stock as a Zacks Rank #2 (Buy).

AMZN is being valued at 60.1x forward P/E, miles above any close competitor. This is due to the substantial growth that is being priced into the company. Forward PEG is a better indicator of value because it adds expected growth into the valuation. AMZN is trading at a 1.8x PEG which is actually below the average PEG of the S&P 500 which sits at 1.9x. The stock is trading the lowest end of its 5-year valuation trend.

Take Away

Amazon Q2 earnings release is one of the most anticipated reports of this earnings season. Jeff Bezos has taken this company from a bookstore in his garage to the largest online retailer and a leader in cloud computing.

Investors are expecting to see an EPS beat with analysts consistently setting conservative estimates. A miss would likely lead to negative price action. Topline growth has been a key indicator of price movement, so pay close attention to that figure. Management guidance and sentiment could also drive AMZN one way or the other.

The Hottest Tech Mega-Trend of All

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit information about the performance numbers displayed in this press release.