Amazon Earnings Preview: Why Q3 Should Catapult AMZN Stock Past $600

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Amazon (AMZN), the dominant e-commerce company that’s been changing retail as we know it for 20 years now, reports third-quarter earnings on Thursday, October 22, after the market’s close.

amazonI don’t have a crystal ball, but the writing is on the wall: the Amazon earnings announcement could very well be a blowout — one that sends AMZN stock soaring well past its all-time high of $580 per share, and clear past $600 per share, too.

Here’s what Wall Street is expecting from the Amazon earnings announcement…and why AMZN stock is so compelling at today’s levels.

The 2 Bullish Indicators in Amazon Earnings Estimates

Four times a year, like clockwork, a club of the nerdiest guys on Wall Street — “analysts,” they call themselves — run their little financial models and come up with earnings-per-share and revenue estimates on the companies they cover.

For stocks like AMZN, which has a ton of analysts covering it and widespread investor interest, these Wall Street Urkels should be able to collectively predict Amazon earnings and revenue with respectable consistency.

Unfortunately, they can’t. Other companies, maybe, but not Amazon.

In fact, the inaccuracy of these analysts is mostly to blame for the remarkable rally we’ve seen in the AMZN stock price in 2015. Up 84% to-date at the time of this writing, nearly all of AMZN’s advance stems from the last three Amazon earnings reports, which each blew expectations out of the water.

That’s the first bullish indicator; Amazon earnings and revenue were underestimated, not once, not twice, but three times in 2015 alone (and not by trivial amounts). Could it be that AMZN is simply firing on all cylinders? Entering an age of long-term profitability?

Personally, I think so.

Secondly, analysts are vainly trying to save face by revising Q3 Amazon earnings estimates higher. Ninety days ago, they expected a third-quarter loss of 59 cents per AMZN share. By 30 days ago, the consensus estimate was for a 16-cent loss. Since then, the consensus EPS estimate rose once more, and now analysts expect AMZN to lose 13 cents per share in the most recent quarter.

Final answer?

AWS Can’t Stop, Won’t Stop

I’ll admit, the third-quarter is routinely Amazon’s least-profitable of the year, and Jeff Bezos isn’t exactly known for his fiscal restraint. Third-quarter Amazon earnings could actually come out to a 13-cent-per-share loss. Or a 26-cent loss.

It could make or miss its $24.91 billion in expected revenue, too.

The nerdy quants on Wall Street are out of their depth with Amazon earnings (but, I’m certainly not claiming that I can do any better).

But, I do think that a mosaic of clues and subtle hints suggest AMZN could post another blowout quarter when Amazon earnings hit the wires on Thursday.

The first is the recent success of Amazon Web Services, Amazon’s cloud-based enterprise-facing solutions division. AWS, as it’s called, saw revenue jump 81% year over year for the the second quarter, and while AWS revenue accounted for less than 8% of AMZN’s total revenue, it accounted for 36.4% of operating profit at the entire company.

Amazon will continue to leverage the wild success of AWS in the future; the company is plunging into the Big Data and analytics markets, too, going head-to-head with companies such as Qlik Technologies (QLIK), Tableau Software (DATA), and Splunk (SPLK). The project will be called Amazon Space Needle.

At the same time, Amazon has been cost-cutting, too, winding down its online travel booking website, Amazon Destinations. Although it’s a $157 billion market, AMZN swallowed its pride and threw in the towel after it failed to catch on.

Amazon Prime Day

Then, of course, there’s Amazon Prime Day, a one-day online sales holiday of the company’s own creation. Prime Day was held on July 15, early in Amazon’s last quarter, and it appears to have been a blowout:

  • “Amazon sold more units on Prime Day than Black Friday 2014, the biggest Black Friday ever
  • Worldwide order growth increased 266% over the same day last year and 18% more than Black Friday 2014
  • More new members tried Prime worldwide than any single day in Amazon history
  • Sellers on Amazon that use the Fulfillment by Amazon service enjoyed record-breaking unit sales — growing nearly 300%
  • Customers ordered hundreds of thousands of Amazon devices — making it the largest device sales day ever worldwide”

At the end of the day, I don’t know what Amazon earnings will look like come Thursday. Neither do you, and neither does Wall Street.

But, taking a step back and looking at the mosaic, I like what I see.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/amazon-earnings-amzn-stock-q3-2015/.

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