North America

Earnings Preview: Amazon.com, Inc. Q1 2017 (AMZN)

By: Craig Bowles

Overview

Amazon.com (AMZN) is slated to report 1Q 2017 earnings after the close on Thursday, April 27th. Results are typically released between 4:01 and 4:10 p.m. ET. A conference call will follow at 5:30 p.m. ET which is webcast through Amazon Investor Relations. The world’s largest internet retailer is a component of the S&P 500 and NASDAQ 100 Indexes.

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Outliers & Strategy

Amazon provided the following guidance for the 1Q 2017 period in the February (4Q) earnings release:

  • Net sales: The Company guided between $33.25 bln and $35.75 bln. Analysts expect an increase of 21.2% y/y to $35.31 bln. (Source: Yahoo! Finance) Revenue is a critical measure for Amazon and often dictates the after-hours trading action. Consensus was $35.91 bln three months ago.
  • The company also indicated operating income is expected to be between $250 mln and $900 mln.
  • Earnings Per Share (EPS): Amazon typically reports a “clean” figure that compares with consensus estimates. The Street estimate is for $1.13 (range $0.26 to $2.34). Consensus was $1.70 three months ago.

Forward guidance is a critical measure for Amazon and usually impacts the ensuing trading activity:

  • Revenues Guidance 2Q2017): Analyst consensus is for up 21.2% y/y to $36.84 bln (range $35.68 bln to $37.92 bln).
  • Operating Income (Loss) Guidance (2Q2017): Guidance has been conservative historically.
  • Shares can react negatively toward conventional measures such as Earnings Per Share and Revenues but the market tends to reverse if the operational metrics are stronger than forecasts.
  • Price/Book 22.3x compares to the 5-year average 17.1x; Price/Sales 3.2x compares to the 5-year average 2.2x; Price/Cash Flow 26.4x compares to the 5-year average 27.7x. (Price/Sales shows good value at up to 4.2x given expected revenue growth.) While much of the attention centers on Amazon’s retail operations, an overlooked part of its business are the hosted web services & cloud-computing segments that contribute meaningful revenue.
  • Analysts view Amazon with 46 Buy, 4 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 25,262 shares during the last three months and 2,141,963 shares over the past year. (source: NASDAQ.com)
  • Amazon shares have a 1-day average price change on earnings over the past eight quarters of 7.11%. Options are pricing in an implied move of 4.24% off earnings.

Recent News

  • 04/20: Amazon unveiled its plans to roll out a retail offering in Australia, according to a post on Barron’s.com.
  • 04/12: Morgan Stanley’s longish (25 pages) report on the real-estate concluded that Amazon is investing more in warehouses close to America’s dense urban environments, according to a post on Barron’s.com.
  • 04/12: Amazon reportedly considered buying Whole Foods last fall while also thinking about a new grocery-store without cashiers. Grocery stores struggle to make money (but so do books), according to a post on Barron’s.com.
  • 04/10: Amazon shares are already up more than 50% in the last 12 months. Needham upgraded Amazon to Buy and sees another 21% in the coming year citing a belief that Amazon is better positioned than its competitors to capture mobile market share, according to a post on Barron’s.com.
  • 04/05: Amazon reached a deal with the National Football League to stream 10 games of Thursday Night Football for a total payment of $50 million, five times what Twitter (TWTR) had paid for the same number last season, according to a post on Barron’s.com.
  • 04/04: Amazon sells ads on its own site, and has been expanding its ability to place ads on third-party sites. Amazon made about $1.2 billion from ads last year, according to a post on Barron’s.com.

Technical Review

Amazon’s stock has been in an uptrend since November 2008 and the exponential growth of the stock prices since 2014 is a little unsettling but a third leg up similar to the first would take the stock to $1130. $923.72 in early April was another new all-time high. Point and figure charts show a current balance area around $900 and the next at $850. (Chart courtesy of StockCharts.com)

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Summary

From books to possibly auto parts, Amazon continues to impress customers. The company’s pledge to add 100,000 new jobs in the U.S. over next 18 months is expected to help ward off political antitrust blowback. The worry is that various investments will cut into 2017 profitability. Over the last four quarters, the company’s EPS has beaten and missed analyst consensus by an average of 40c. Estimize consensus for an EPS of $1.17 on revenue of $35.576 bln compares to analyst consensus for an EPS of $1.13 on revenue of $35.31 bln. Market participants will also focus on next quarter’s guidance. Amazon’s operating income guidance has shown improved downside over the past year and reports above the high end of guidance have coincided with positive market reactions. $900 mln is the high end for this quarter.

 

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