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Can Q4 earnings deliver for the Amazon share price?

Amazon [AMZN] is expected to report a 9.72% rise in revenues and a 72.32% drop in year-over-year earnings per share when it reports its fourth-quarter results on 3 February.

Analysts at Zacks forecast that revenues will reach an all-time high of $137.76bn, but earnings per share will come in at $3.90.

The Amazon share price is expected to drop on these expected results, as it would mark a continued slowdown from revenue growth of 15% in Q3 and 27% in Q2 owing to higher brick and mortar buying as pandemic-related restrictions are lifted.

Andy Jassy, Amazon’s chief executive, explained at the previous quarter’s announcement that the company has incurred “several billion dollars of additional costs” in its consumer business as a result of “labour supply shortages, increased wage costs, global supply chain issues and increased freight and shipping costs.”

Despite promising Black Friday and holiday season sales in the final quarter of the year, the group is expected to have suffered from a slowdown in ecommerce.

The Amazon share price continues to drop

Over the past 12 months the Amazon share price has dropped 6.7% to close at $2,991.47 on 31 January. Since the start of 2022 Amazon’s stock price has fallen 10.3%, blasted by the move in the market away from growth and towards value.

The AMZN stock price performance compares with peers Walmart [WMT], whose share price was up 1.1% year-over-year, and Alibaba [BABA], down 50%.

Amazon has a 22.04% weighting in the Consumer Discretionary Select Sector SPDR ETF [XLY], whose share price has climbed 12.2% over the past 12 months.

Amazon missed expectations in Q3

In its third quarter Amazon reported earnings per share of $6.12, falling short of the forecast $8.92. Its revenues also came in lower than expected at $110.81bn, compared with the analyst outlook of $111.6bn. Amazon’s share price fell 4% on October 28 after the result announcement. The Amazon stock remained range-bound for the next couple of trading sessions.

Amazon’s operating cash flow was down 1% to $54.7bn for the trailing 12 months, compared with $55.3bn for the 12 months ending 30 September 2020.

For its fourth quarter Amazon expected sales of between $130bn and $140bn, down on forecasts of $142.1bn. Amazon’s market cap around is at $1.5trn.

Amazon Web Services (AWS) was a shining light, which beat revenue expectations to climb 39% to $16.11bn.

The expansion of its same-day delivery service and Just Walk Out store technology, as well as new original Amazon Music podcasts and Fire TV devices were other aspects that excited investors.

Amazon has also been expanding its sports broadcasting offering, having acquired exclusive rights to NFL Thursday Night Football in 2020 and 80% of French Ligue 1 and Ligue 2 matches in 2021.

Despite disappointing Q3 results, Jassy remained optimistic, stating that the company would choose “what’s best for customers over the long term” over “optimising for short-term profits”.

The outlook is uncertain for Amazon stocks

According to CNN, analysts expect Amazon to post earnings of $3.72 and revenues of $137.7bn.

Zacks analysts believe that Amazon has been benefitting from its Prime program, delivery and logistic system in the ecommerce space. The strong adoption rate of AWS is also aiding its cloud dominance. Zacks added that the development of “robust Alexa skills and [an] expanding smart home products portfolio” are positives for the company, but supply chain issues and labour shortages still need to be tackled.

$137.7billion

Analyst expectations for Q4 revenues, per CNN

 

Amazon management will be asked about whether the supply chain is improving and their views on consumer confidence and spending further into 2022. Investors will also be keen to hear more about new products, services or deals, such as the recent tie-up with auto maker Stellantis to deliver smarter cars and electric vans.

Looking forward, according to CNN, 43 analysts offering 12-month price forecasts for Amazon have a median target of $4,000 and a consensus ‘buy’ rating.

BMO analyst Daniel Salmon recently lowered his price target to $3,600 from $4,100 but kept an ‘outperform’ rating. Salmon is worried about lower online and third-party seller revenues in 2022 and 2023 due to ongoing supply constraints and tough pandemic comparisons. But he adds that AWS should see strong demand post-Covid 19, and that Amazon is still the leader in “retail media”.

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