Amazon earnings set to reflect increasing focus on profitability – Stock Market News


Marios Hadjikyriacos, XM Investment Research Desk

The world’s biggest online retailer will announce its earnings for Q1 after the US market close on Thursday. Revenue is expected to slow, but profit growth is seen picking up, something that reflects the company’s recent approach of focusing on operating margins. Guidance by management for Q2 will be crucial for the stock’s reaction in the aftermath.

The e-commerce giant is expected to report earnings per share (EPS) of $4.72 in Q1, which would represent a robust 44.5% increase from the same quarter last year, according to Thomson Reuters/Refinitiv forecasts. Meanwhile, revenue is expected to clock in at $59.6bn, marking a 16.9% gain from the prior-year quarter, which is slower compared to recent quarters but still a healthy increase overall.

Slowing revenue, but accelerating profit growth

Even though revenue growth is slowing, which is natural for a company of Amazon’s size, the firm’s profit margins are nevertheless on an uptrend. The company has been focusing on profitability lately, shifting towards high-margin segments of its business, like cloud-computing (AWS) and its rapidly-growing advertising service.

The other side of that coin is curtailing costs. For instance, Amazon just announced it will close its e-commerce business in China amid fierce competition from the likes of Alibaba. Likewise, the firm is removing products from its retail platform that either have very thin profit margins or are making losses given high shipping costs, which exemplifies that the top priority is no longer growing revenues, but rather growing profits.

Guidance

Perhaps even more important than Q1 earnings and revenue numbers, will be what guidance the company’s executives provide for Q2 in the subsequent conference call with analysts. Case in point, Amazon’s stock fell at the last earnings call – even though earnings had beaten expectations – after the firm’s directors provided weaker guidance for Q1 than Wall Street had anticipated.

Some of the topics of interest this time around may be their plans for India, a market that many expect Amazon to focus on now that it’s exiting China, as well as their expectations for the ad-powered music streaming service that was launched recently.

Outpacing the market

Amazon’s stock has posted robust gains so far this year, outpacing the broader market. Year-to-date the firm’s stock is up by 28%, outperforming both the S&P 500 (+17%) and the Nasdaq 100 (+23.4%) – the indices that Amazon is listed on.

The technical outlook

Taking a technical look at Amazon, the stock seems ready to post a ‘golden cross’, where the 50-day simple moving average (SMA) moves above the 200-day SMA; a bullish sign. In case of a positive surprise in earnings or upbeat guidance by management, the stock could soar above the 1,930 barrier. The next obstacle to offer resistance may be the 2,030 area, marked by the October 1 high.

On the downside, disappointing earnings and/or guidance could see the stock pull back towards the 1,820 zone, defined by the March peak. Even lower the attention would shift towards 1,745, where both the 50- and 200-day SMAs are currently located.

Other notable names releasing their earnings on Thursday include Intel, Ford, Comcast, and 3M.