Amazon Q1 earnings preview: guidance and stock split – Stock Market News



Amazon’s stock has barely budged since the rally to a record high of 3,552 last September, despite the spectacular earnings in the previous quarter. Another stellar report could follow today after the market close, but with Jeff Bezos having stepped down as the company’s CEO and the vaccines easing the dependence on online activities, investors would like to get an excellent Q3 guidance under the new CEO to boost buying orders, especially those who have missed the pandemic rally.

Q1 earnings results

It is difficult to classify Amazon in a specific industry. Back in 1995, the company went into business as an online bookstore, but after almost two decades it has transformed into one of the world’s largest inventive multinational technology companies which provides services in e-commerce, cloud computing, digital streaming, and artificial intelligence. Not even the devastating pandemic could knock down its diversified operations as working from home expanded demand for cloud-based technology and online retail, awarding Amazon with huge wins in 2020.

As usual, the first quarter is expected to arrive weaker when compared to the previous festive Q4, which also included the postponed Prime Day. However, on a yearly basis, the results may paint another rosy picture. Particularly, total revenues are expected to have soared by 38.2% to $104.65 billion, holding within the guidance of $100 -106bln, while per-share earnings are said to have surged by 90% to $9.55. Net income is also forecast to be within the range target of $3-6.5bln too, at $4.9bln, down by 31% from Q4 and up by 96% from Q1 2020.

Amazon Web Services 

The web services section (AWS), which is a giant component of the e-commerce business and a frontrunner to Microsoft’s Azure, will be again on top of mind given its juicy margins. The division is forecast to hit a record revenue at $13.2bln, marking a quarterly growth of 3.2% and an annual expansion of 29.2%.

Online shopping

Online stores, which are the largest source of revenue and which faced extreme demand during the pandemic, will be next on investors’ check lists as the vaccines and the falling infections in the US are expected to motivate normal outdoor shopping in the coming quarters, reducing sales for Amazon. Indeed, a reduction of 22.2% from the all-time high of $66.4bln in Q4 is projected, though compared to the same quarter last year, the amount is expected to hold up by 41%. On the other hand, physical stores may have bounced by 6.8% quarter-on-quarter and tumbled by 7.4% year-on-year. Even so, digital shopping may not go away in the post-Covid period, but it could become something more permanent as many consumers have discovered its convenience. Encouragingly, some data analytics have recently stated that Amazon could overtake Walmart, although it has an entirely different business model.

Guidance & stock split

The Seattle-based retail empire has built-up a solid loyalty base to dominate investors’ interest even in bad times. Of course, the larger and more diversified it gets, the more challenges it has to tackle as reflected by the mushrooming battles it has against allegations of anticompetitive business practices, and more recently accusations of violating labor law. Amazon’s legal conflicts, however, have been mostly ignored by markets as the focus remains on how big its leadership could get in the next years and what could make it a fantastic long-term investment.

Therefore, its guidance for Q2 could again grab greater attention, with investors eagerly waiting to hear how the reopening phase could evolve for Amazon under the new CEO Andy Jassy. The former CEO Jeff Bezos said that the company is supportive of a rise in corporate taxes and having this view might moderate the negative effect of Biden’s tax plans for now.

A potential stock split will also be in the hot spot after rumours boosted the stock by 2.0% earlier in the week. Such an action would reduce the entry bar for younger investors and raise liquidity and volume for Amazon, while a triple-digit price would make it more appealing to be included in the Dow Jones Industrial Average. Note that Tesla and Apple have recently completed stock splits as well, and despite Bezos’s reluctance, traders hope that the new CEO Jassy will be more generous to them, especially to those who missed the pandemic rally.

Levels to watch

Amazon has dropped in the list of the best performing components in the S&P 500 community over the past year, currently hovering slightly above the average of 45% as lofty valuation seems to be weighing on demand. A bullish guidance and stock split news could bring the bulls back into play this week, likely sending the price above the all-time high of 3,552 and towards the 3,700 psychological mark. Beyond that, the door would open for the crucial 4,000 level.

Alternatively, a downbeat guidance could pressure the price towards the 3,330 – 3,200 region formed by the simple moving averages. Lower, the 3,000 number may attempt to stop any decline towards the bottom of the range at 2,871.

 

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