AMZN Stock: Will the Rally Continue After Amazon.com, Inc.’s Earnings?

AMZN StockThis Could Be Massive for Amazon Stock

When Amazon.com, Inc. (NASDAQ:AMZN) stock lost more than $100.00 a share earlier this year, investors got a bit worried. At the time, I was also concerned, but still believed that Amazon stock could make a comeback because of its huge potential in industries other than online shopping. As it turned out, Amazon stock indeed bounced back, gaining more than $260.00 per share in just over five months.

Now that the company is about to report earnings, will the momentum in AMZN stock shares continue?

It’s possible. But first, let’s take a look at what analysts are expecting…

Judging by the direction the stock has been going lately, it’s quite obvious that the market has high hopes for the e-commerce giant. For the second quarter of 2016, Wall Street analysts are projecting 27.5% year-over-year revenue growth to $29.6 billion. (Source: “Analysts,” Yahoo! Finance, last accessed July 22, 2016.)

Bottom-line improvement could be even more impressive. Analysts expect AMZN stock to generate $1.11 in earnings per share (EPS), a whopping 484% improvement from the year-ago EPS. (Source: Ibid.)

If you have been following the company for a while, you might know that earnings season was crucial to spark the rally in AMZN stock last year. After the company reported its earnings on July 23, 2015, Amazon’s stock price surged more than 15%. The No. 1 reason behind that was its bottom line. The company’s guidance range was a loss of $500 million to a profit of $50.0 million; the actual result turned out to be 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.)

Sentiment became increasingly bullish after that earnings report. It has been a little more than 12 months since the announcement and Amazon stock is up more than 50%.

This time, expectations are already high, but there is some indication that Amazon’s e-commerce business is still going strong.

Record Sales on Prime Day

Earlier this month, Amazon hosted what it calls “Prime Day.” On Prime Day, customers who purchase a “Prime” membership can shop tens of thousands of deals across nearly every category on Amazon. This was Amazon’s second annual Prime Day and it turned out to be quite successful.

On the following day, Amazon announced that customer orders surpassed last year’s Prime Day by more than 60% worldwide and more than 50% in the U.S. Moreover, this was also the biggest sales day ever for Amazon’s own devices, including “Fire TV,” “Fire” tablets, “Kindle” e-readers, and “Alexa”-enabled connected devices. (Source: “Amazon’s Prime Day Is the Biggest Day Ever,” Amazon.com, Inc., July 13, 2016.)

The company didn’t really say how much money Prime Day actually brought in, but analysts are estimating incremental sales of between $500 million and $600 million for Amazon’s top line. (Source: “Amazon Just Had Its Biggest Sales Day Ever,” CNBC, July 13, 2016.)

Of course, Prime Day happened after the end of the second quarter, so its contribution to Amazon’s financials won’t really show up on this earnings report. However, what happened on Prime day could have a much deeper impact on Amazon than a one-time sales boom.

You see, Prime memberships are one of Amazon’s greatest strategies. The reason is that Prime members spend a lot more on Amazon compared to non-Prime members. A survey released by Consumer Intelligence Research Partners showed that Prime members spend an average of about $1,200 on Amazon annually versus $500.00 per year by non-members.

Moreover, when you can have unlimited free two-day shipping on nearly all purchases, why would you shop elsewhere on the Internet? Prime members have strong incentive to shop on Amazon instead of on competing e-commerce platforms. The more Prime members Amazon has, the more dominant it becomes.

Amazon is not known for releasing specific numbers on its total Prime userbase. So in this earnings report, the company probably won’t disclose how many new members signed up for a Prime subscription during Prime Day. However, management could provide some colors on membership growth and that should be able to cheer up investors.

The Bottom Line on AMZN Stock

The company is scheduled to report earnings on Thursday, July 28 after the closing bell. The bar on its second-quarter results is set pretty high. At the same time, analysts will pay close attention to management’s guidance on the company’s future business.

Overall, sentiment on Amazon stock is quite bullish. Let’s hope this earnings report doesn’t change that.