By: Brendan Gilmartin
Amazon.com (AMZN) is scheduled to report 4Q 2013 earnings after the closing bell on Thursday, January 30. Results are typically released between 4:01 and 4:10 p.m. EST. A conference call will follow at 5:00 p.m. EST.
Outliers & Strategy
Amazon provided the following guidance for the 4Q 2013 period back in its October (3Q) earnings release:
- Net sales are expected to be between $23.5 bln and $26.5 bln, up 10% to 25% compared with the fourth quarter of 2013. The current consensus is toward the high end of this range at $26.03 bln. (Source: Yahoo! Finance!). Revenue is a critical measure for Amazon and often dictates the after-hours trading action, given the wide breadth of analyst and company estimates. This quarter's figure is particularly intriguing as it reflects the outcome of the holiday shopping period.
- The company also indicated operating income (loss) is expected to be between $(500) million and $500 million. According to Zacks Investment Research, the consensus estimate is $470.1 mln for reported operating income.
- Amazon is expected to post Earnings Per Share of $0.66 (range is $0.01 to $1.86). (Source: Yahoo! Finance). Amazon usually provides a value for the measure Earnings Per Share that most often compares with consensus estimates.
- Forward guidance is a critical measure for Amazon and usually impacts the ensuing trading activity. Current estimates (1Q 2014):
- Revenues: $19.67 bln. If the low end of revenue forecast exceeds this estimate, shares could rally to fresh all-time highs.
- 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 are contributing meaningful revenue. Amazon Web Services (AWS) has emerged as one of the more profitable segments with the unit now procuring major contracts from corporations and the U.S. government.
- Amazon is trading near an all-time high following an upbeat holiday shopping season, dominant market position, and improving margins. While the shares tend to react negatively toward conventional measures such as Earnings Per Share and Revenues, the market tends to reverse so long as the operational metrics are stronger than forecasts. There will also be additional emphasis on the revenue outlook for the fourth quarter as it reflects the holiday spending season.
- 12/30: Citigroup reiterated a Buy rating on Amazon and raised the price target to $457 per share, according to a post on StreetInsider.com. The firm cited a positive fourth quarter, driven by strong holiday sales and Prime memberships.
- 12/26: Amazon announced a record-setting holiday season for Amazon Prime, with more than 36.8 million items ordered worldwide on Cyber Monday.
Amazon recently broke out to an all-time high of $408.06 (01/22) ahead of the 4Q earnings release. At these levels, Amazon is vulnerable to any missteps, and could test initial support at $390, with downside risk to $370. Should Amazon deliver a convincing beat on EPS, revenue, and operating metrics, look for shares to push through the aforementioned peak near $408, with no technical resistance beyond that level. (Chart courtesy of StockCharts.com).
Amazon shares are just off the recent all-time high ($408.06) following a 25% run-up since mid-October, thanks to an improved spending backdrop, its increasingly dominant position in e-commerce, a pickup in the global economy, and a strategic push into mobile. Against this positive backdrop, Amazon is vulnerable to any missteps. Note that in past releases, the tendency has been to sell-off sharply on the initial report, only to rally in the ensuing session as the Street focuses on the operating metrics (operating income & margin) and non-core retail business.
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