Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

70% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

  • Earnings
  • disruptive innovation

Is the Amazon share price on for an earnings surprise?

The Amazon share price [AMZN] has gained 11.3% throughout the year so far, closing at $3,699.82 on 26 July.

The Amazon share price had started 2021 on a downward trend. The stock fell 4.7% in the opening fortnight to close at $3,104.25 on 15 January, before recovering to $3,380 — up 3.8% for the year — by 2 February. However, a poor run across stock markets then saw the Amazon share price crash to $2,951.95 on 8 March.

11.3%

Amazon's YTD share price gains

 

Following this poor run, the Amazon share price entered another recovery phase, which saw it post closes of $3,400 on 13 April and $3,471.31 on 29 April. However, a rapid price decline in May led to a year-to-date decline of 3.2% to $3,151.94 on 12 May.

Since then, the Amazon share price has been on a sustained upward trend, closing at a year-to-date high of $3,731.41 on 8 July. As of 26 July, the Amazon share price is trading 18.7% above where it was 12 months ago.

 

Amazon share price attracts an atmosphere of optimism

Amazon is due to report its second-quarter earnings for the period ending in June 2021 after markets close on 29 July. Zacks Equity Research’s consensus estimate forecasts sales of $115.05bn, 29.40% up year-over-year, with earnings expected to rise 18.1% since 2020’s equivalent quarter to $12.16 per share.

The high sales estimate of $116.44bn would indicate a 30% increase year-over-year, while the low estimate of $110bn would see sales rise by 24%. Earnings estimates ranged from $10.55 to $14.73 per share, indicating that earnings are expected to increase between 0.5% and 40.3%, respectively, year-over-year. Meanwhile, the consensus revenue of $115.07 among analysts polled by Yahoo Finance would represent a 29.4% increase, while the consensus for earnings of $12.22 would represent an 18.6% increase.

$115.05billion

Amazon's forecasted Q2 sales - a 29.4% YoY rise

 

Zacks consensus sales target indicates a 6% increase on last quarter’s reported sales of $108.52bn, while earnings per share will have fallen 23% if the consensus estimate for this quarter is accurate. It is notable that even the high earnings estimate falls below last quarter’s earnings of $15.79, which would suggest that Amazon’s profitability has fallen during the three months to June, a period in which the Amazon share price has nevertheless gained 41.5%.

The optimism makes more sense in the context of the longer-term forecasts for Amazon’s earnings performance. Zacks Equity Research expects Amazon’s earnings to increase to $57.32 in 2021 and to continue growing to $74.35 in 2022. The view was slightly less optimistic among analysts polled on Yahoo Finance, with 2021 estimates coming in at $55.86 and 72.38 for 2022.

 

SKYY high

The Amazon share price increase could equally be a fallout from the hype surrounding founder Jeff Bezos’s history-making flight into space. While the media attention surrounding Bezos’s extra-atmospheric adventure will no doubt have driven demand for the Amazon share price, the most discerning investors will have looked for signs of improving business performance to justify paying a premium for the stock.

On that note, the Pentagon’s cancellation of a $10bn cloud computing contract with Microsoft [MSFT], which Amazon had challenged in court from the moment it was awarded in 2019, will have convinced many that there are good reasons underlying the recent increase in the Amazon share price.

$10billion

Valuation of Pentagon's cancelled cloud computing contract with Microsoft

 

The Pentagon cloud contract symbolises an important fact about Amazon: its fortunes are tied as much to its big tech status as its e-commerce prowess. AWS, Amazon’s cloud computing arm that is set to benefit from at least part of the new Pentagon contract, increased revenues close to 30% in 2020 and accounted for more than 63% of the company’s operating profit for the year. Indications from two leading ETFs for each theme suggest that cloud computing is experiencing a stronger run at present.

Amazon is the second-largest holding in the First Trust Cloud Computing ETF [SKYY], with a 3.84% weighting as of 27 July. On the e-commerce side, Amazon is the top holding in the ProShares Online Retail ETF [ONLN] as of 27 July with 26.29% of the fund’s value.

The First Trust Cloud Computing ETF outperformed the ProShares Online Retail ETF in the year-to-date (through 27 July), with gains of 10.8% compared to its peers’ 0.5% decrease in the same period. The trend holds over the long-term, too, with gains of 38.7% in the past 12 months, beating the Pros hares Online Retail ETF’s gains of 32.5% over the same period. Interestingly, however, both funds have outperformed the Amazon share price over the trailing 12 months. 

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.

Continue reading for FREE

  • Includes free newsletter updates, unsubscribe anytime. Privacy policy

Free ebook

Tricks of the trade: 7 interviews with the world’s top traders

Get it now

Related articles