6 Asset Classes - 16 Trading Platforms - Over 1000 Instruments.
6 Asset Classes - 16 Trading Platforms - Over 1000 Instruments.
Every company wishes for a blessing like Amazon.com received from the Covid-19 crisis, and the second quarter earnings results due on Thursday after the market close could further justify this view. The e-commerce giant is expected to show stronger financial results, with analysts maintaining their “buy” recommendation and raising the median share price target to $3,300.
Amazon could benefit during unusual times
The virus crisis changed people’s habits in ways that no one could do in a short period of time. Usually, under normal conditions, companies observe consumers’ behavior and then create new products/services or modify/upgrade existing ones in order to satisfy most spending preferences.
Currently, we are not in normal times and the pandemic proved that it can easily adjust our traditional way of thinking and that placed Jeff Bezos’ Amazon on the right side of the storm. The lockdown, which was in full effect worldwide in the second quarter, forced more consumers to try online shopping, even those who were not familiar with this type of retail spending.
Thankfully for the Seattle-based Amazon, it already had a well-developed online marketplace providing plenty of goods and services across the globe. So, demand and subscriptions accelerated for the world’s richest man’s e-platform in the first three months of the year. Outside of retail, its very profitable web and cloud services division expanded at a faster pace as remote working and virtual meetings, which were a novelty in previous years, became a must for employees to work safely and business activities to keep going globally.
Of course, Amazon is facing challenges as well. Covid-19 emerged out of blue and the company must now pay extra costs to serve a larger list of clients and ensure that its facilities are following health protocols. In March, it announced that it would hire 100,000 employees in the US, while it also limited the shipping of non-essential items. Recently, it ordered approximately 2,300 trucks of bigger size to support the delivery service center and sustain customer momentum. Also surprising was the amount of $4 billion it pledged to spend in the second quarter to cover the virus-related expenses after saying that this could be the entire operating profit they expect to make. Hence, investors may pay attention to operating and other expenses today to verify if Amazon kept its word.
Amazon may have experienced another super quarter
Turning to Q2 earnings results, there is growing confidence that the e-commerce giant experienced another solid quarter. In the previous release, Amazon guided for revenue of $75 billion to $81 billion, with analysts setting their mean forecast at $81.55 billion, the lowest at $75.15 and the highest at $91.05. Revenue from online stores is said to have risen to $40.22 billion, marking an annual and quarterly increase of 29.5% and 9.7% respectively. The key AWS segment is projected to have generated $10.92 billion, gaining a quarterly bounce of 30.3% and an annual increase of 6.9%, while the subscription services number will be in the spotlight too, likely revealing a climb of 27.9% from last year and a 7.6% growth from Q1.
On a negative note, soaring expenses are expected to pressure net income to $670.79 million, much lower than the $2.5 billion gathered in Q1 and the $2.6 billion earned in the same quarter last year. Consequently, earnings per share (EPS) are forecast to tumble to a two-year low of $1.46.
Q3 guidance in focus
As always, though, the guidance for the third quarter will steal the show as markets are eagerly waiting to hear what Jeff Bezos’ outlook and fears are amid the spiking virus cases and a slowing US economy which saw its worst GDP contraction of 33% (annualized) in Q2. The nature of Amazon’s business fits quite well to the virus situation and the company has many ways to expand. During the second quarter Amazon launched its AWS services in Europe and Africa, further tightening competition with rivals such as Microsoft’s Azure and Alphabet’s Google Cloud. Moreover, additional companies such as Lyell Immunopharma, which is developing a curative cell therapy for solid tumors, and the IHS Markit data survey platform decided to experience Amazon’s cloud offerings. Notably, Amazon managed to release its next generation Fire HD 8 tablet family and strengthened Alexa echo devices in Q2, while it also plans to increase sales in the space industry, having already extended its partnership with Air Transport Services Group. It would also be very interesting to know how the long-lasting Prime membership service evolved in Q2 following a 28% bounce in Q1. Note that the Prime day for great deals which usually takes place in mid-July has been likely postponed to October.
All in all, Amazon’s diversifying portfolio is likely to keep it in power in the industry or at least add significant support if downside risks emerge. Perhaps, the health community may find a solution for the pandemic at some point and people may resume their traditional offline activities. But the experience of comfortable online and computing services will not be forgotten, and consumers could keep using them in their post-virus daily life.
Amazon overperforms, but technical negative risks detected
In Wall Street, Amazon.com Inc. is on the top list of the best S&P 500 performers, gaining 62% year-on-year versus the 7.95% overall growth in the index. It’s also worth noting that its P/E ratio is the second highest in the S&P 500 community and is triple the index’s average.
From a technical perspective, however, there are some discouraging signs that weakness may persist in the short-term. The stock has registered a lower high and a lower low in the four-hour chart following the peak at a record high of 3,344. Should the price close below the supportive 50-period simple moving average (SMA), it could revisit the previous low of 2,900. Another violation at this point may strengthen negative momentum towards the 2,800 former resistance region, while lower the 2,700 could be another level to watch.
Alternatively, a rebound above 3,098 could push the stock towards the 3,200-3,240-resistance zone, a break of which would eliminate fears of a down-trending market. In this case, traders may see a retest of the 3,344 all-time high, and if this fails to stop the rally too, the door would open for the 3,400 and 3,500 psychological numbers.
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