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Earnings season is always an exciting time to be an investor, as stocks typically go up during the period. In addition, investors can finally see what’s transpired behind the scenes and how companies have navigated the quarter.
This time around, things are serious.
After a once-in-a-lifetime pandemic, we’ve found ourselves in a highly unique economic environment. Inflation is at levels not seen in decades, and supply chains are entirely disrupted, leading to widespread margin compression.
Now that we have a surplus of companies reporting daily, investors will have a more precise image of how companies have fought back against the forces that have plagued them.
One titan slated to release quarterly results on July 28th (Thursday) is the e-commerce and cloud computing giant Amazon AMZN.
We’re all familiar with Amazon, the online retailer that has taken e-commerce to the next level while enjoying a dominant position in the cloud computing market with its Amazon Web Services (AWS).
Let’s see how the market titan shapes up heading into its quarterly report.
Share Performance & Valuation
Year-to-date, Amazon shares have lost nearly a third of their value, extensively underperforming the general market.
The company’s 20-for-1 stock split pushed life back into shares for a short period, but shares really broke off after the company’s worse-than-expected earnings report in late April.
Image Source: Zacks Investment Research
However, the selling has slowed down notably. Over the last month, Amazon shares have tacked on 1.4%, performing in line with the general market.
Image Source: Zacks Investment Research
The worst could be over for AMZN shares, with buyers finally stepping up over the last month.
Amazon’s 2.4X forward price-to-sales ratio is well below its five-year median value of 3.3X but represents a 77% premium relative to its Zacks Sector.
AMZN currently has a Style Score of a C for Value.
Image Source: Zacks Investment Research
Quarterly Estimates
Analysts have primarily been bearish for the quarter to be reported, with six negative estimate revisions hitting the tape. In addition, the Zacks Consensus EPS Estimate of $0.15 reflects a concerning 80% drop in quarterly earnings year-over-year.
Image Source: Zacks Investment Research
However, the top-line appears to be in much better condition; the quarterly revenue estimate of $120 billion notches a respectable 6% uptick compared to year-ago sales of $113 billion. The chart below illustrates the company’s revenue on a quarterly basis.
Image Source: Zacks Investment Research
Quarterly Performance & Market Reactions
The company has primarily reported EPS above expectations, exceeding the Zacks Consensus EPS Estimate in seven of its previous ten quarters.
However, the company recorded a sizable 52% bottom-line miss in its latest quarter.
In addition, quarterly sales numbers have left much to be desired as of late; Amazon has missed on the top-line in each of its four previous quarterly reports.
Shares are likely to move lower if the company doesn’t record a bottom-line beat – out of Amazon’s previous three bottom-line misses, shares have moved downwards each time.
Key Metric
Amazon enjoys a top spot in the cloud computing industry, undoubtedly a major positive. Investors will be watching AWS sales numbers like a hawk.
For the quarter, the Zacks Consensus Estimate for net sales of AWS resides at $19.4 billion, up 5.6% from the previous quarter and a sizable 31% year-over-year.
Bottom Line
Being a mega-popular stock, the quarterly report will have widespread market effects. It’ll give investors a clearer image of consumer spending, perhaps the most critical factor of all.
Earnings are forecasted to decline by a double-digit percentage, but revenue looks to register solid growth – a reflection of the margin compression negatively impacting the company.
The 20-for-1 split helped bring some life back to Amazon AMZN shares, and sellers seem to have started to tire out based on share performance over the last month.
Heading into the quarterly report, Amazon is a Zacks Rank #3 (Hold) with an Earnings ESP Score of 24.2%.
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