Amazon's [AMZN] share price is up 11.6% over the past 12 months. However, it has been volatile having missed earnings expectations for the past two quarters. Going into Q4 earnings, hopes are that cloud computing revenue and a bumper holiday season will surpass expectations - and help Amazon’s share price push the firm’s market cap back past that $1trillion mark.
Back in September 2018, the online retailer joined the so-called trillion-dollar club. Think Microsoft [MSFT], Apple [AAPL] and Alphabet [GOOG]. But heavy investment in online content and improved one-day shipping have eaten at earnings. So, will post-earnings share price gains see Amazon rejoin the trillion-dollar club?
When is Amazon reporting Q4 earnings?
What to look out for in Amazon's Q4 earnings results
Holiday Prime boost adds to revenues (and AMZN’s share price?)
Amazon has said it experienced a record-breaking holiday season. While the online retailer hasn’t revealed figures, they should substantially add to Q4 revenues. What they have said is that Amazon Prime saw 5 million new subscriptions or free trials in one week over the holiday season. Amazon is guiding for total revenue to come in at $80 billion to $86.5 billion - up 11 to 20% from last year.
Analysts are expecting revenue to come in near the top end of guidance at $85.92 billion.
AWS continues its outsized contribution
Amazon's AWS dominates the cloud-computing sector. Last quarter, AWS revenue came in at $9 billion. Thanks to AWS's high operating margin compared to Amazon's other businesses, this represented a 53% contribution in overall operating income. For the fourth quarter, Amazon rolled out AWS Data Exchange, which should add to the numbers. Yet competition in the cloud-computing sector is fierce. Amazon has been losing market share to Microsoft Azure and Google Cloud. Any upset here is likely to move Amazon's share price.
AWS revenue from last quarter
What to expect in Amazon's Q4 earnings results
Wall Street expects Amazon to post earnings of $4.04 per share in Q4 - down 33.11% on the $6.04 seen in the same quarter last year. Forecasts for revenue are at $85.92 billion, up 18.7% year-on-year.
Zacks Earnings ESP (Expected Surprise Prediction) is coming in at +10.23%. This indicates that analysts are more bullish on Amazon's share price and a surprise could be on the cards.
Recent changes to share price targets reflect that bullishness. Morgan Stanley equity analyst Brian Nowak is backing Amazon in 2020. In a note to clients in mid-January, Nowak said:
“Amazon’s high-margin businesses continue to allow Amazon to drive greater profitability while still continuing to invest.”
“Amazon’s high-margin businesses continue to allow Amazon to drive greater profitability while still continuing to invest” - Morgan Stanley equity analyst Brian Nowak
Nowak upped his share price target to $2,200 per share from $2,100 - a 19.8% upside on the current share price. UBS also upped their share price target in January, going to $2,305 from $2,100, which would represent a 25.6% upside. UBS is bullish on Amazon's one-day Prime delivery business, which it expects will lead to an increase in orders.
Among analysts, Amazon carries an average share price target of $2,181.63. Hitting this would represent an 18% upside on the current share price. Out of the 47 analysts tracking the stock on Yahoo Finance, 43 rate it either a Strong Buy or Buy.
|PE ratio (TTM)||81.01|
|Quarterly Revenue Growth (YoY)||23.70%|
Amazon share price vitals, Yahoo Finance, 28 January 2020
Amazon’s share price in 2020
Having missed expectations before, Amazon's share price is unsurprisingly volatile post-earnings. For traders, it's worth weighing up the chances of the stock bouncing back from any falls, and with it, an appropriate level to sell.
Investopedia's Richard Suttmeier argues that Amazon's share price is in bull market territory. Yet traders should be wary before piling in as Amazon is trading below its 52-week intraday high. According to Suttmeier, traders should:
"Buy Amazon shares on weakness to the annual value level at $1,771.99 and reduce holdings on strength to the semiannual risky level at $3,078.34."
Over on Forbes, Trefis, a team of MIT engineers and Wall Street analysts, have crunched the numbers:
"For after a drop of 5% in Amazon stock over a week (5 trading days), while there is only about 43% chance the stock will gain 5% over the subsequent week, there is more than 46% chance this will happen in 3 months, and 62% chance it’ll gain 5% over a year (about 250 trading days)."