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Amazon (AMZN) Earnings Thursday Could Be a Springboard
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Amid a deceleration in the tech space, Q3 earnings kickoff and America’s favorite online shopping site is preparing to release its September results. Amazon (AMZN - Free Report) shares have been in a state of limbo since the beginning of August, and investors are hoping that its earnings release Thursday, October 24th, will propel this stock back into a rally.
AMZN typically doesn’t move more than a few percent on earnings reports, but it has had more significant moves on the past. Zacks Consensus estimates illustrate an EPS of $4.46 on sales of $68.37 billion. This would represent a 22% EPS decline, but a revenue appreciation of 21%. EPS estimates have historically been overly conservative, and investors tend to anticipate large beats. EPS beats of less than 20%, over the past few years, have been associated with a negative price impact on AMZN shares.
8 of the last 12 quarterly reports (and 4 out of the past 5) have had an adverse price action on this stock, though the upsides tend to be large and have outweighed the share declines over the last 3 years.
AMZN estimates have fallen quite a bit since the subpar Q2 earnings report in July, which could have created a springboard for a substantial upside this quarter.
The Business
Amazon has changed the world we live in today from starting the retail apocalypse to popularizing cloud computing. We all know Amazon as the site that sells everything, but most of us are probably unaware that the majority of Amazon’s income is derived from its cloud segment.
Not only is cloud computing Amazon’s most profitable segment, it is also driving almost all of the firm’s current and future growth. The cloud segment is becoming increasingly competitive with Microsoft (MSFT - Free Report) and Google (GOOGL - Free Report) adding steep competition to the space.
Recent Activity
AMZN has fallen over 10% since its disappointing earnings report back in July. The company experienced larger than expect expenses due to its one-day and same-day delivery offering. This new delivery service is bringing in an increasing number of prime members, and the long-term gains will outweigh the short-term costs that this program is expecting.
Amazon’s cloud segment, AWS, also missed estimates, decelerating the growth of this segment quicker than expected. AWS is anticipated to be the primary growth driver moving forward. This larger than expected slowdown caused uneasy AMZN sentiment in the market.
Amazon has been struggling with short term costs due to its investment in one-day delivery domestically and internationally. Analysts are anticipating that Amazon’s high margin AWS cloud business will make up for the thinning margins in e-commerce. 70 to 80% of operating income is expected to be derived from AWS by the end of this year.
Prime Day was an enormous success, and the single largest event in Amazon history with sales surpassing Black Friday and Cyber Monday combined. Expect the benefits of this event to be reaped in Q3.
I believe that these short-term margin cuts will not affect the long-term growth of the company, and as AMZN’s price falls, the buying opportunity ripens. The question is, what price makes these shares a truly ripe buy? The price at which I would not hesitate to pull the trigger on AMZN is anything below $1,500.
AMZN appears to have stalled in the $1700s waiting on the upcoming earnings report for a decisive directional move.
Take Away
Amazon’s expectations have fallen significantly since Q2 earnings at the end of July. This could be leading to considerable upside potential for the report on Thursday. Though, you need to keep in mind that the stock has slid from the last 4 out of 5 quarterly releases.
This stock is a good reflection of the US economy with a broad scope that covers consumer staples, consumer discretionary, as well as cloud technology. AMZN is a lower risk tech play if you are willing to shell out over $1500 on one share.
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Amazon (AMZN) Earnings Thursday Could Be a Springboard
Amid a deceleration in the tech space, Q3 earnings kickoff and America’s favorite online shopping site is preparing to release its September results. Amazon (AMZN - Free Report) shares have been in a state of limbo since the beginning of August, and investors are hoping that its earnings release Thursday, October 24th, will propel this stock back into a rally.
AMZN typically doesn’t move more than a few percent on earnings reports, but it has had more significant moves on the past. Zacks Consensus estimates illustrate an EPS of $4.46 on sales of $68.37 billion. This would represent a 22% EPS decline, but a revenue appreciation of 21%. EPS estimates have historically been overly conservative, and investors tend to anticipate large beats. EPS beats of less than 20%, over the past few years, have been associated with a negative price impact on AMZN shares.
8 of the last 12 quarterly reports (and 4 out of the past 5) have had an adverse price action on this stock, though the upsides tend to be large and have outweighed the share declines over the last 3 years.
AMZN estimates have fallen quite a bit since the subpar Q2 earnings report in July, which could have created a springboard for a substantial upside this quarter.
The Business
Amazon has changed the world we live in today from starting the retail apocalypse to popularizing cloud computing. We all know Amazon as the site that sells everything, but most of us are probably unaware that the majority of Amazon’s income is derived from its cloud segment.
Not only is cloud computing Amazon’s most profitable segment, it is also driving almost all of the firm’s current and future growth. The cloud segment is becoming increasingly competitive with Microsoft (MSFT - Free Report) and Google (GOOGL - Free Report) adding steep competition to the space.
Recent Activity
AMZN has fallen over 10% since its disappointing earnings report back in July. The company experienced larger than expect expenses due to its one-day and same-day delivery offering. This new delivery service is bringing in an increasing number of prime members, and the long-term gains will outweigh the short-term costs that this program is expecting.
Amazon’s cloud segment, AWS, also missed estimates, decelerating the growth of this segment quicker than expected. AWS is anticipated to be the primary growth driver moving forward. This larger than expected slowdown caused uneasy AMZN sentiment in the market.
Amazon has been struggling with short term costs due to its investment in one-day delivery domestically and internationally. Analysts are anticipating that Amazon’s high margin AWS cloud business will make up for the thinning margins in e-commerce. 70 to 80% of operating income is expected to be derived from AWS by the end of this year.
Prime Day was an enormous success, and the single largest event in Amazon history with sales surpassing Black Friday and Cyber Monday combined. Expect the benefits of this event to be reaped in Q3.
I believe that these short-term margin cuts will not affect the long-term growth of the company, and as AMZN’s price falls, the buying opportunity ripens. The question is, what price makes these shares a truly ripe buy? The price at which I would not hesitate to pull the trigger on AMZN is anything below $1,500.
AMZN appears to have stalled in the $1700s waiting on the upcoming earnings report for a decisive directional move.
Take Away
Amazon’s expectations have fallen significantly since Q2 earnings at the end of July. This could be leading to considerable upside potential for the report on Thursday. Though, you need to keep in mind that the stock has slid from the last 4 out of 5 quarterly releases.
This stock is a good reflection of the US economy with a broad scope that covers consumer staples, consumer discretionary, as well as cloud technology. AMZN is a lower risk tech play if you are willing to shell out over $1500 on one share.