Amazon.com Inc. is expected to report another solid financial period when it reports third-quarter earnings after the market closes Thursday, fueled by stronger e-commerce sales and increased appetite for its cloud-computing service, Amazon Web Services.
Total Amazon AMZN, -0.26% revenue is expected to rise by 29% year-over-year, with U.S. e-commerce sales increasing by 16% and AWS revenues rising by 52%, according to Cantor Fitzgerald, which recently raised its price target on Amazon shares to $1,000.
“Our checks show healthy double-digit pace of growth in e-commerce and we view Amazon as one of the prime beneficiaries of such a trend,” Cantor Fitzgerald analyst Youssef Squali said in a note to clients Monday.
Here’s what to expect:
Earnings: Sell-side analysts surveyed by FactSet expect Amazon to report a profit of 78 cents a share, compared with 17 cents in the year-earlier period. Contributors to Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages and buy-side analysts to predict earnings, expect Amazon to report a dollar a share. The company topped both consensus estimates by a wide margin in the first two quarters of this fiscal year after missing Wall Street’s guidance by roughly 46% in the final quarter of fiscal 2015.
“After years of uneven profits, Amazon has begun to deliver substantial earnings,” said Wedbush analyst Michael Pachter, who has an outperform rating and $900 price target on the stock.
Revenue: The company is expected to report revenue of $32.689 billion, compared with $23.2 billion in the year-earlier period, according to the FactSet consensus estimate. Estimize has Amazon’s revenue coming in slightly lower, around $32.250 billion. Amazon beat both guidance ranges in its past two fiscal quarters.
Stock reaction: Shares of Amazon have outperformed the S&P 500 both in the past three months and the past year. The stock has risen nearly 12% in the three months since its last earnings report, compared with a decline of 1.1% for the index. They’re up 39% from a year ago, compared with a 3.6% increase for the S&P 500. On Monday, the stock traded 1.7% higher to $833.27. The average rating on the stock is the equivalent to buy, while the average price target on shares is $881.13.
What to watch for: Coupled together, Amazon’s ballooning e-commerce sales and cloud services have positioned the company for sustained and substantial earnings growth, said Pachter.
The company’s North American e-commerce same-store sales have started to turn around after several months of declines, rising 10.4% in August and 11.8% in September, compared with growth of just 6.4% in July, according to Nomura analyst Anthony DiClemente, citing ChannelAdvisor data.
“While below Amazon’s historical average, we believe the slower growth is substantially offset by ramping growth in total third-party sellers due to ongoing success of the Fulfillment by Amazon program,” said DiClemente, who rates Amazon shares a buy with a $950 price
target.
target.
Wedbush’s Pachter said AWS and Fulfillment by Amazon (FBA) — a system in which sellers store merchandise at Amazon fulfillment centers that is then packed and shipped by Amazon — will help to expand gross margin. However, a partial offset will likely be a sharp increase in spending on video licenses and content creation as Amazon ramps up efforts to compete with Netflix Inc. NFLX, -0.16%
In addition to the benefits of FBA, Prime membership growth has continued, and the Prime Day event in July has likely provided a boost. Amazon captured 35.5% of market share for U.S. online shoppers last year, according to data compiled by Slice Intelligence earlier this month. Roughly 55% of consumers now go straight to Amazon before turning to search engines when searching for products online, according to Mirakl, a platform provider for online marketplaces.
“We think upside to our revenue estimate of $33.12 billion is likely driven by Prime Day in July, membership growth and AWS expansion,” said Patcher.
By Tonya Garcia & Jennifer Booton
No comments:
Post a Comment