This Could Be Huge for Amazon Stock
Investors seem to have different opinions about how much Amazon.com, Inc. (NASDAQ:AMZN) stock is really worth. Earlier this year, Amazon stock bears seemed to be winning. Soon after, AMZN stock bounced back, gaining more than 54.2% in less than five months.
Now the company is reporting earnings. Here’s what it could mean for Amazon stock investors. (The link to the company’s earnings press release is included at the end of this article.)
Judging by the recent movement of the stock, along with its over 300X price-to- earnings multiple, it’s pretty clear that hopes are high for Amazon earnings. For the record, though, investors always had high expectations for the e-commerce giant. However, in the past four quarters, Amazon stock has beaten Wall Street’s earnings estimates three times by a wide margin. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed July 28, 2016.)
Stats on Amazon.com, Inc.
|Analyst EPS Estimate||$1.11|
|Change From Year-Ago EPS||484.2%|
|Revenue Estimate||$29.55 billion|
|Change From Year-Ago Revenue||27.4%|
|Earnings Beats in Past 4 Quarters||3|
Source: Yahoo! Finance
For the second quarter of 2016, analysts expect the online shopping giant to generate $29.55 billion in revenue, which would represent a 27.4% increase year-over-year.
The bottom line is where growth could really happen. Analysts are projecting earnings of $1.11 per share, a whopping 484.2% improvement from the year-ago period.
As is the case with almost all companies, beating top- and bottom-line expectations would be crucial for Amazon stock. In fact, the catalyst that started the giant surge in AMZN stock last summer was a solid bottom line. The company’s own guidance range for the second quarter last year was between a loss of $500 million and a profit of $50.0 million. What was the actual result? It was a net income of $92.0 million. (Source: “Amazon.com Announces Second Quarter Sales Up 20% to $23.18 Billion,” Amazon.com, Inc., July 23, 2015.)
Still, for a company commanding a $350-billion market cap, summing up its entire operation with two numbers probably won’t tell the whole story. In particular, there are several key segments to which investors should pay close attention.
Amazon Web Services (AWS)
“Amazon Web Services,” or AWS, is the company’s cloud computing arm. The cloud computing industry is rapidly growing, so it shouldn’t come as a surprise that AWS is one of the fastest-growing segments at Amazon.
In the first quarter of 2016, AWS net sales increased 63.9% year-over-year to a record $2.57 billion. At the same time, operating margin expanded from 16.9% in the first quarter last year to 27.9%. Increasing sales and an expanding margin helped drive AWS’ operating income up more than 200% year-over-year to $604 million in the first quarter. (Source: “Amazon.com Announces First Quarter Sales up 28% to $29.1 Billion,” Amazon.com, Inc., April 28, 2016.)
AWS also announced new services in the first quarter, such as Amazon “Lumberyard,” a cross-platform 3-D game engine for developers, and AWS “Database Migration Service,” a fully managed service that allows customers to migrate their production databases from on-premises data centers to any engine with virtually no down time. If today’s earnings report shows that AWS is still growing at a rapid pace, it could be a catalyst for Amazon stock.
Amazon Prime Membership
If you have been following the company, you would know that Amazon just had its second annual “Prime Day,” when “Amazon Prime” members shopped tens of thousands of deals across nearly every category on Amazon.
Customer orders on this year’s Prime Day surpassed last year’s by more than 60% worldwide and more than 50% in the U.S. Prime Day was held on July 12, so its contribution to the company’s top and bottom lines won’t be reflected in this earnings report.
However, Amazon stock investors would be interested to know how many new members signed up for a Prime subscription during Prime Day. This is because Prime members tend to spend more on average on Amazon compared to non-Prime members. What happened on Prime Day could have a much more long-lasting impact on Amazon stock than just a one-time sales boom.
The Bottom Line on AMZN Stock
The company is scheduled to release its second-quarter earnings report after the closing bell today. AMZN stock investors will be looking for both top- and bottom-line growth, a continued sales boom at AWS, as well as updates on its Prime membership. However, note that Amazon doesn’t usually release exact numbers on its Prime membership, so you might also want to listen to management’s comments during the earnings conference call to get a better idea on the subject.