Amazon earnings is the key release to watch today – Stock Market News

Christina Parthenidou, XM Investment Research Desk

Jeff Bezos’s famous will be among the highlights this week as the world’s second most valuable company by market capitalization is expected to report its Q2 financial results on Thursday after Wall Street’s closing bell. After a stellar start to 2019, the tech-giant is anticipated to set the bar higher, but pitfalls could still lie ahead, making markets wonder whether Amazon’s stock price could search for new record highs.

Earnings forecast

Total revenues are expected to have jumped to $62.46bn in the three months to June according to Refinitiv analysts, marking an increase of 4.6% relative to the previous quarter and a growth of 18% compared to a year ago. Subtracting taxes, net income is forecast to decline by 26% to $2.8bn, and with the number of shares forecast to rise a bit, earnings per share (EPS) are seen falling from $7.09 to $5.59 but holding slightly above the $5.07 registered last year. Although a growth slowdown in revenues is normal for big businesses, the markets have been reacting to the stats recently, making revenues a key part of the earnings report.

Thinking of the past, the e-commerce company has been consistently beating the market’s estimates especially in the past two quarters and this time might not be any different given its expansionary and innovative strategy.

The CFO, Brain T. Olsavsky said during the Q1 conference call that improvements in its logistics and supply chain would allow for a one-day delivery to Prime members across the US over the year instead of the standard two-day shipping from the day an item is sent. While such an evolution is estimated to add $800 million to expenses, the fast delivery that is already available would more likely attract a bigger number of high-margin subscriptions (offers access to video and music streaming services as well) and raise the entry-barriers for newcomers in the industry even higher.

While online stores hold the bulk of revenues, Amazon is not only about online retailing. Actually, in terms of profitability, its cloud-segment AWS is the leading arm and a key contributor to EPS and the share price, and is expected to generate more than 40% of profit from Q2 last year. Competition in the cloud environment, however, is intensifying, as new technology features such as artificial intelligence and machine learning opened the market to new players. Yet a report by Goldman Sachs stated that AWS’s market share in cloud services could expand to 47% this year compared to 22% and 8% estimated for Microsoft’s Azure ad Google respectively. Worthy of notice, Microsoft saw its shares climb by more than 3% last week when its financial results revealed larger deals for its Azure web services, with revenues in the specific segment surpassing forecasts despite a growth slowdown.

More to come ahead

In the year ahead, Amazon is ready to amaze its massive audience even further. After signing a partnership with the real estate brokerage Realogy Holdings Corp a few days ago, the company has agreed to provide $5,000 worth of home-improvement products and services including its Alexa powered echo speakers for every house purchased through the TurnKey program that connects the Amazon portal with the real estate agent. Developments also seem to be moving on in Amazon Studios which back in November 2017 won the rights to produce at least five-seasons of Lord of the Rings TV series, likely to cost around $1 billion.

For game lovers, the company is also teaming up with Leyou Technologies Holdings Limited and Middle-earth Enterprises to create massively multiplayer online game based on the story. While the date of the release for the game and the TV series is still unknown, the projects are expected to add extra value to Amazon in coming years. Besides, the record sales in the two-day Prime event this month that surpassed the combined sales from Black Friday and Cyber Monday and gained the majority in online sales, have already opened the path for a stronger third quarter.

Technical analysis

Meanwhile on Wall Street, Amazon’s share price managed to finish neutral in the second quarter thanks to June’s buying pressure. In July the stock expanded even higher to approach its 2018 record peaks before edging lower, gaining 6.61% over the last year, slightly stronger than the 5.88% increase in the Nasdaq 100. Should the earnings results, and more importantly the guidance for the third quarter, come in better-than-expected, the stock could re-challenge its recent peaks around 2,036 and the all-time high of 2,050 registered in September 2018. A bigger surprise in the data, could drive the market to uncharted waters and towards the 2,100 psychological level.

In the negative scenario, a miss relative to forecasts or a discouraging outlook for the coming quarters and deep concerns over the legal battle with the European and US antitrust authorities, may push the price below the 20-period moving average in the four-hour chart and near the 1,950 barrier. Traders could also look for support between 1,896 and 1,850 in case of a sharper sell-off.