By: Craig Bowles
Amazon.com (AMZN) is slated to report 1Q 2018 earnings after the close on Thursday, April 26th. Results are typically released by 4:02 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.
Outliers & Strategy
Amazon provided the following guidance for the 1Q 2018 period in the February (4Q) earnings release:
- Net sales: The Company guided between $47.75 bln and $50.75 bln. Analysts expect an increase of 39.7% y/y to $49.88 bln. (Source: Yahoo! Finance) Revenue is a critical measure for Amazon and often dictates the after-hours trading action. Consensus was $48.66 bln three months ago.
- The company also indicated operating income is expected to be between $300 mln and $1.0 bln. (Above the guidance range has coincided with sharp increases in the stock price.)
- Earnings Per Share (EPS): Amazon typically reports a “clean” figure that compares with consensus estimates. The Street estimate is for $1.25 (range $0.66 to $1.70). Consensus was $1.74 three months ago.
Forward guidance is a critical measure for Amazon and usually impacts the ensuing trading activity:
- Revenues Guidance 2Q2018): Analyst consensus is for up 37.6% y/y to $52.21 bln (range $50.98 bln to $53.46 bln).
- Operating Income (Loss) Guidance (2Q2018): 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 25.0x compares to the 5-year average 18.8x; Price/Sales 4.0x compares to the 5-year average 2.5x; Price/Cash Flow 38.3x compares to the 5-year average 27.7x. (Price/Sales shows good value at up to 5.4x given expected revenue growth. Even the expected slowing next year shows value up to 4.4x.) While much of the attention centers on Amazon’s retail operations, an overlooked part of its business is the hosted web services & cloud-computing segments that contribute meaningful revenue.
- Analysts view Amazon with 49 (51 last qtr) Buy, 3 Hold, and 0 Sell ratings. (source: MarketBeat.com)
- Insiders sold 38,025 shares during the last three months and 2,093,380 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 4.80%. Options are pricing in an implied move of 6.61% off earnings.
- 4/19: Amazon revealed one of its biggest, longest-kept secrets — the company has more than 100 million Prime members globally, according to a post on Recode.net.
- 4/18: Amazon will partner with Best Buy (BBY) to begin selling its smart TVs with Alexa, according to a post on Techcrunch.com.
- 4/17: The U.S. Supreme Court is deciding on whether to let states force out-of-state online retailers to collect sales taxes on purchases. About half of Amazon sales are sold by third-party venders from which Amazon does not collect a sales tax, according to a post on CNBC.com.
- 4/16: Amazon Inc had dropped plans to sell drugs to hospitals, according to a post at Geekwire.com.
- 4/13: Credit Suisse reiterated an Outperform rating for Amazon but calculates that a US Postal Service rate hike could cost the company up to $1.8 billion more per year. Longer term could see a shifting of shipping volume to its own delivery services, according to a post on CNBC.com.
- 4/05: KeyBanc has a Buy rating on Amazon while noting strong growth of its cloud services segment, Amazon Web Services. Amazon AWS and Microsoft’s (MSFT) Azure are breaking away from the pack and dominating the booming cloud services market, according to a post on US News and World Report.
- 4/03: Piper Jaffray suggests buying Amazon shares despite President Trump’s criticism of the company’s policy of not collecting state and local taxes from third-party sellers. A survey of 2,000 U.S. consumers found that just 5% see sales tax as a critical factor when deciding where to shop, according to a post on CNBC.com.
- 3/24: There are an estimated 90 million paying Amazon Prime subscribers in the United States. Morgan Stanley expects 51% of households by the end of 2018. Pretty strong considering less than 50% work. (The BLS reports only 155 million of the 325.7 million are employed.), according to a post on Business2community.
- 3/20: Amazon passed Microsoft in February and Alphabet (GOOGL) in March to become the second most valuable publicly listed U.S. company behind Apple (AAPL), according to a post on GeekWire.com.
Amazon stock is still a bargain relative to revenue growth but expectations for future slowing makes it somewhat less of one. With all the negative news around tax collections and postal rate increases, you almost forget the ongoing incredible cloud services growth and the anticipation of cashier-less stores in their 460 Whole Foods locations. The effect of previous price hikes on Prime subscribers should be watched closely this year but appears to have been already forgotten in the media. Analysts remain bullish. Insider selling mostly dissipated over the past three months except for CEO-Worldwide Consumer Business Jeffrey A. Wilke who sold steadily throughout the February-March bounce back to new all-time highs. Over the last four quarters, the company’s EPS has beaten and missed analyst consensus by an average of 55c with the average beat being 40c. Estimize consensus for an EPS of $1.32 on revenue of $50.419 bln compares to analyst consensus for an EPS of $1.25 on revenue of $49.88 bln. Amazon’s operating income guidance has shown less downside risk in recent quarters and reports above the high end of guidance have coincided with positive market reactions. $1.0 bln is the high end for this quarter. Market participants will also focus on next quarter’s guidance while keeping in mind that it tends to be conservative.
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