Why AMZN Stock Was Muted After Earnings
Amazon.com, Inc. (NASDAQ:AMZN) continued its recent trend of sweeping analysts off their feet. The company crushed earnings expectations in its last earnings review, reported on Thursday. AMZN stock is now primed for huge gains in Q3 and Q4.
If you’re looking at the market and wondering why AMZN stock didn’t surge immediately, don’t worry; it was weighed down by weak gross domestic numbers. The U.S. economy didn’t grow as quickly as expected last quarter and that acted as a tailwind.
Nonetheless, the numbers speak for themselves. According to a Thomson Reuters consensus estimate, Amazon was expected to deliver earnings of $1.11 per share. Ha! The company swatted aside such puny estimates and slammed down an emphatic $1.78 per share. (Source: “Amazon.com Announces Second Quarter Sales up 31% to $30.4 Billion,” Amazon.com, Inc., July 28, 2016.)
Revenue for the quarter came in at $30.40 billion, slightly above the $29.55 billion that Wall Street had forecasted. What’s impressive is that Amazon was able to trounce expectations that were already elevated beyond reason. AMZN stock was up 58.2% since its low point in February. Investors were clearly expecting a lot from the company.
They effectively raised the bar, but it didn’t matter. Amazon cleared it with ease. The company is also improving in ways that don’t make headline news.
Let’s take a closer look…
#1 Reason to Be Bullish on AMZN Stock: Amazon Echo
The “Amazon Echo” is one of the biggest tailwinds for AMZN stock. It is a voice-activated speaker that doubles as a personal assistant. You can ask the Echo to read out the news to you, order you items from Amazon.com, or even call you an Uber.
The Amazon Echo can do all these things because it’s powered by the company’s artificial intelligence system, “Alexa.” By continuously adding functions to the Alexa platform, Amazon is basically expanding what the Amazon Echo can do.
The company calls these abilities “skills.” The Amazon Echo currently has more than 1,900 skills, with many more on the way. It’s one of the most incredible advancements in technology, yet no one saw it coming. There was no giant advertising campaign, no media blitz, and no hype.
But industry insiders think the Echo could be the next big thing. Google is working on a similar product, and I’m sure Apple won’t be far behind once it sees the Echo for what it truly is: a gateway to the Internet of Things (IoT).
IoT is an emerging industry where all household items are connected to the Internet and people can control them simply by issuing voice commands. I personally think these devices will soon be as common as the “iPhone,” meaning that AMZN stock will reap enormous rewards.
#2 Reason to Be Bullish on AMZN Stock: India
With 1.4 billion potential consumers—one billion of which have mobile phones—India is rapidly becoming one of Amazon’s hot spots. The company is seeing enormous uptake of its services in the region, which is why it is expanding so rapidly.
Just consider what CEO Jeff Bezos has to say about his company’s presence in the subcontinent:
“It’s been a busy few months for Amazon around the world, and particularly in India—where we launched a new AWS Region, introduced Prime with unlimited free shipping, and announced that Prime Video is coming soon, offering Prime members in India exclusive access to Amazon Original Series and Movies—including original content featuring top Indian creators and talent. The team in India is inventing at a torrid pace, and we’re very grateful to our Indian customers for their welcoming response.” (Source: “India Just Crossed 1 Billion Mobile Subscribers Milestone,” Forbes, January 6, 2016.)
Think about it: India has a potential market that’s three-times bigger than the U.S. By all accounts, it’s going to provide a lot of fuel for AMZN stock.
#3 Reason to Be Bullish on AMZN Stock: Cash Flow
Amazon’s operating cash flow grew by 42% over the last 12 months. That means that it’s actually accumulating some extra cash, which can be funneled into new businesses.
I know that doesn’t sound like much, but it is where AMZN stock is concerned. Jeff Bezos is one of the most gifted capital allocators in the world, so extra cash is always a good thing for AMZN stock. He’ll invest the money in a new line of business for Amazon and then quickly come to dominate that industry. It’s something that Amazon has done time and again to the exact same result—a surge in AMZN stock.