The Nasdaq Composite has been bumping up against new record highs for the past month, stalled near the 5,900 level as the bulls work off an extreme overbought condition. Many major component stocks are mirroring this pattern, including Amazon.com, Inc. (NASDAQ:AMZN), which has stalled just below $860 — a continued resistance pattern going back to October.
Similar stalling was seen last summer as well as in late 2015. But both had much different outcomes. The consolidation last summer resulted in a surge to new highs near $850, a rally of around 10%. The late 2015 sideways crawl presaged a massive 30%-plus decline into the February 2016 low of $475 a share.
Shares have been in stasis since mixed earnings were reported back on Feb. 2. Earnings beat by 19 cents per share, but revenues, up 22% from last year, missed estimates while forward guidance was weak.
The real concern was a slowdown in the growth rate of the high-margin cloud services businesses, with year-over-year growth dropping from 69% in the third quarter to 47% in Q4. At $1.1 billion, the profits from this division are far more than the rest of the company combined.
Moreover, the company’s aggressive capital expenditures remain a profitability concern as well. Amazon is increasingly becoming vertically integrated — becoming a quasi-transportation company, an industry with decidedly lower margins than the typical technology firm — with moves such as leasing a 900-acre air cargo hub to house 40 “Prime Air” cargo planes for the next 50 years, as well as moving into the ocean freight business.
The company will next report results on May 4 after the close. Analysts are looking for earnings of $1.13 per share on revenues of $35.3 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers. Redeem by clicking the links above.