Ecommerce giant Amazon [AMZN] is expected to report a 16% increase in revenue but nearly 30% fall in net profit year on year when it reports earnings on October 28. Sales are buoyed by rich demand for ecommerce and cloud offerings.
Yet, the Amazon share price has been under pressure because matching up with last year’s growth when brick and mortar stores were shut is difficult. Profits are also hurting from rising costs.
The group warned earlier that there might be a further slowdown in revenue growth in the September quarter. It forecast on year revenue growth of between 10% and 16% down from 27% in the second quarter and 37% in the first quarter of 2021.
However, analysts are more optimistic about Amazon’s share price and general business performance. Higher costs for the company include hiring more staff to cope with supply chain squeezes over Christmas, wage hikes and investments in warehouses and logistics such as Amazon Air.
Amazon's expected revenue growth is down from 37% and 27% in Q1 and Q2, respectively
Demand for ecommerce and cloud business Amazon Web Services are expected to remain strong, as many employees continue to work from home.
Analysts at Zacks are expecting Amazon to report earnings of $8.72 per share, and revenues of $111.85bn.
According to the Wall Street Journal, analysts are displaying a mixture of bullishness and caution, with the 12-month average target for Amazon’s share price sitting at $4 148.11 (as of 26 October).
Mark Mahaney of Evercore has a $4,700 target price. “Amazon is aggressively investing and one of the negative surprises is the outlook of margin declines…I do worry for the near-term,” Mahaney said, as reported by The Street.
“Amazon is aggressively investing and one of the negative surprises is the outlook of margin declines…I do worry for the near-term" - Mark Mahaney, Evercore
Previous earnings performance
Amazon reported second quarter earnings per share of $15.12, up from $10.30 in the same period last year and beating forecasts of $12.30. Revenues were $113.08bn, up 27% but a slowdown on the 41% growth in the second quarter of 2020. Revenue was forecast to be $115.2bn.
“We’ve seen AWS growth reaccelerate as more companies bring forward plans to transform their businesses and move to the cloud" - Amazon CEO Andy Jassy
Amazon Web Services saw revenues rise 37% in the second quarter, up from 32% growth in the first quarter, offering the quarterly report a much-needed boost.
“We’ve seen AWS growth reaccelerate as more companies bring forward plans to transform their businesses and move to the cloud,” said Andy Jassy, Amazon CEO.
Triggers for Amazon’s share price
There may be pressure on Amazon’s share price as Jeff Bezos (pictured above) steps down as CEO over the summer to assume the role of executive chairman. Jassy will face questions regarding his long-term strategy with Amazon, as well as how much influence he really has.
Analysts are keeping a keen eye on consumer trends heading into the festive season. Amazon’s views on supply chain squeezes around the globe and higher shipping and container fees will be in focus too. Its cloud revenues will be key to its share price performance post-announcement.
Analysts will be keen to hear about any more innovations at the group following recent moves such as the expansion of its Halo fitness platform and a partnership with Ford [F] to use the Alexa voice service in the automotive giant’s cars and vans. Its plans for a grocery business, Amazon Fresh, will also be on the menu, as will any commentary on investment in distribution and logistics.
There is overhang of antitrust lawsuits along with other Big Tech names on the Amazon share price. It has risen just 4% over the last 12 months. Analysts will be keen to hear Amazon’s views on antitrust investigations in the US and Europe.
The fallout in the form of new laws and regulations could be damaging to Amazon’s share price and brand. It may be a business behemoth with arms in all areas of business from retail to technology, but Bezos’ firm remains vulnerable in the months ahead.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.