Amazon earnings: Another impressive quarter? - Stock Market News



The world’s biggest online retailer will report its results on Thursday after Wall Street closes. Analysts expect another amazing quarter as Prime Day came early this year, turbocharging sales. The prospects for Amazon remain bright overall, but in the near future, the company could face a slowdown in growth as people in America and Europe spend less time at home. 

It’s good to be king

Amazon has come to dominate everyone’s lives and the pandemic simply accelerated this process. The company thrived during economic lockdowns as people were trapped at home, looking for things to buy online. 

Beyond its traditional e-commerce business, Amazon has also become the leader in the cloud computing industry. This business segment is behind much of the growth that the company has enjoyed lately.  

That said, there are some concerns that e-commerce might slow down now that many countries have rolled back restrictions. With consumers going back to restaurants, bars, and traveling abroad, it’s going to be difficult to maintain the spectacular growth of last year. 

Of course, this isn’t the end of the world. Slowing down from a very high rate of growth to a ‘cruising speed’ is normal. The pandemic probably pulled forward some demand from future years. 

Stock split? 

For the quarter that ended in June, analysts expect revenue of $115 billion, which would represent an almost 30% jump from the same quarter last year. On the profit side, earnings per share are projected at $12.30, an increase of almost 20% from last year. Amazon has a history of beating earnings estimates, having done so in all four preceding quarters. 

These are strong results, although they likely exaggerate the company’s performance during the quarter. Prime Day was held in June this year, instead of July. This means the boost in sales that would normally be reflected in Q3 has been brought forward to Q2, inflating the year-over-year comparison. 

This will be the first earnings call with CEO Andy Jassy, after Jeff Bezos stepped down. Aside from questions about the next quarter, he will probably be asked about a potential stock split. A split could attract more small investors to the stock but more importantly, it would allow Amazon to join the Dow Jones index in the future. 

Because the Dow is a price-weighted index, it’s impossible to add a stock that’s trading at four digits like Amazon. It would essentially have all the weight in the index. Therefore, splitting the stock would add value both by opening the door for entering the Dow Jones, ultimately forcing funds that track the index to buy more Amazon shares. 

The verdict

Overall, the company’s future seems bright. It is the undisputed king in e-commerce, the leader in cloud services, and its advertising business is also growing quickly. Even a slowdown in online sales growth as economies reopen wouldn’t change the company’s long-term trajectory. 

The risks are regulation and valuation. Regulators have come after Amazon lately amid complaints that its dominance in online sales has led to anti-competitive practices. While this is worrisome, it’s unlikely to lead to any real action, like a forced break-up of the company. 

Valuation is the other red flag. Amazon is currently trading at 55.6x forward earnings and 3.4x forward sales, which is not cheap. The company is essentially priced like a tech stock. This shows that markets expect stellar growth for years, but it also means that any bad news could spark a serious correction. 

Taking a technical look at Amazon, a potential earnings beat coupled with strong guidance could see the stock retest the 3,710 zone, ahead of the record high of 3,773. 

On the flip side, a disappointment or downbeat guidance might drive the market towards the 3,500 handle, where a violation would turn the focus towards 3,400. 

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