Expect A Happy Tale Of The Consumer In Amazon, Alibaba Earnings?

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Includes: AMZN, BABA, CAT, F, UA
by: JJ Kinahan

Summary

A Thomson Reuters survey of analysts pegs AMZN’s per-share earnings at $1.63 on top-line sales of $36 billion.

Industry analysts believe that BABA could ultimately weather China’s shaky economy of late, mostly because of a growing middle class.

On a per-share basis, UA earnings are forecast in the Thomson Reuters survey at $0.47, up 17.5% compared with Q4 last year.

Traders will get a look-see into big retailers on different sides of the world this week. Amazon.com (NASDAQ:AMZN) and Alibaba (NYSE:BABA), e-commerce powerhouses in the U.S. and China, respectively, are on the earnings docket Thursday. What insight on consumer spending could these key retail disruptors reveal?

A Thomson Reuters survey of analysts pegs AMZN's per-share earnings at $1.63 on top-line sales of $36 billion. Results are due out after the market's close. Holiday-anchored Q4 earnings are historically AMZN's strongest. Still, the Street's projected profit would represent a 266% vault from the year-ago quarter. And if revenue projections are correct, they'll be up 23% from the comparable quarter. Some of that growth is boosted by Amazon Prime membership, according to Consumer Intelligence Research Partners, which on Monday said Amazon's Prime membership surged 35% in Q4 over the same period last year.

If AMZN - which industry analysts like to call one of the key disruptors in the retail space - falls short of earnings expectations, some industry analysts think it will be an orchestrated move; Chief Executive Jeff Bezos often manages AMZN as close to breakeven as possible to reinvest in the company.

As for the conference call, industry analysts say they'll be listening to how Bezos plans to maintain growth in Prime membership. Prime members, according to CIRP, spend as much as $700 more a year than non-Prime members.

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Figure 1: Volatile Share Performance. Amazon.com traded to October levels last week before launching a roughly 9% rebound. Chart source: TD Ameritrade's thinkorswim platform. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

What About the Competition?

Will BABA's earnings, hitting ahead of the bell on Thursday, reflect continuous online shopping migration, or be a proxy for China's economic lumps? Perhaps a bit of both.

Industry analysts believe that BABA could ultimately weather China's shaky economy of late, mostly because of a growing middle class. But some investors don't seem to believe it; they knocked down the stock nearly 22% last year and chipped another 14% off so far this year.

BABA revenue for its fiscal Q3 2016 is expected to swell some 26% from the year-ago comparable, if analysts have it right. The Thomson Reuters average estimate puts earnings per share at $5.77, up 14.7% from the year-ago period, on revenue of $33.18 billion.

As with many stocks during this earnings season, implied volatility is elevated at the 79th percentile for BABA. Short-term option traders are looking at a potential 7% stock move in either direction around the earnings release, according to our indicator. Buyers are snapping up weekly put options at the 65 strike and weekly call options are at the 75 strike.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

Also Reporting: UA, F, CAT

As with BABA and AMZN, another stock under the retail-meets-tech heading releases results this week. Under Armour (NYSE:UA), the athletic apparel and gear company, recently unveiled its own connected digital fitness system called Healthbox, including a wearable device that it calls UA Band. The company has publicly said it hopes the launch is the beginning of a bevy of wearable technology for athletes of all stripes. As part of its earnings announcement Thursday, industry analysts will be listening to how UA plans to step up marketing on the new tools.

Meanwhile, on a per-share basis, earnings are forecast in the Thomson Reuters survey at $0.47, up 17.5% compared with Q4 last year. That's on revenues of $1.12 billion, a 25% jump over the year-ago period.

UA implied volatility is running at its highest peak, the 100th percentile. Short-term options traders are pricing in a potential 9% move in either direction in the stock's price around earnings, according to our indicator.

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Figure 2: Lost a Step or Two? Under Armour shares managed to eke out solid gains in 2015, up nearly 19% on the year. But 2016's early performance has nearly wiped out that move, with shares off better than 16%. Chart source: TD Ameritrade's thinkorswim platform. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Also on the docket this week, two goods makers that could shed light on economic strength, too: Ford (NYSE:F) and Caterpillar (NYSE:CAT).

F kicks off the earnings pageant for automakers ahead of the bell Thursday. The company revised its full-year guidance to the upside earlier this month because of an accounting change. F said it will post "record" pre-tax earnings in the "upper half" of the $10 billion to $11 billion range. That has analysts guessing that Q4 pre-tax profit could be at least $2.3 billion, up to $2.8 billion. On an after-tax basis, analysts reporting to Thomson Reuters forecast a profit of $0.46 per share, up 77% from the year-ago comparable, on sales of $36.32 billion, higher by 1.2%.

F shares have lost some mojo over the last year-plus: almost 9% in 2015 and another 13% this year. The implied volatility ahead of the earnings release is slightly raised at the 66th percentile and short-term option traders are looking for a potential 2.5% move in either direction on the stock, according to our indicator.

Caterpillar, the heavy-equipment maker, has been caught on the short end of the downturn in mining and energy. It's also been nipped by economic woes in China, Brazil, and South Africa, industry analysts note. As a result, Street analysts have been pulling down expectations. The Thomson Reuters survey calls for EPS of $0.69, plummeting 48% from last year, on a 20% drop in revenues to $11.5 billion.

CAT shares have been bulldozed, pushed down 28% in 2015 and bulldozed another 15% this year, just off 16-year lows. Implied volatility is at a high 90th percentile and short-term option traders are looking for a potential 4.5% move in either direction on the stock, according to our indicator.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. Commentary provided for educational purposes only. Past performance is no guarantee of future results or investment success.

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Disclosure: I am/we are long UA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.