Investors didn’t react kindly to the miss when Amazon.com, Inc. (NASDAQ:AMZN) reported second-quarter earnings per share in late July. In the intervening three months, AMZN stock has struggled, sliding from $1,046 to $975.90. We get another look at earnings later today.
Ahead of that release, what’s the Street looking for from AMZN’s Q3? Well, earnings are expected to come in at 3 cents a share, down from 52 cents on a year-over-year basis.
As for the revenues, they are forecaste to jump by 27.6% to $41.7 billion. Note that AMZN’s own guidance is for revenues to range from $39.3 billion to $41.1 billion. As for the earnings call this afternoon, analysts will certainly have lots to talk about. Here’s a look:
Don’t Expect Much From Whole Foods, Yet
In mid-June, AMZN agreed to shell out $13.7 billion for Whole Foods, the company’s largest acquisition to date. Yet there have since been few details on the overall strategy. Although, AMZN has instituted more aggressive pricing at the grocer and has listed private-label Whole Foods offerings on amazon.com.
For the most part, Wall Street has been positive on the deal. Besides, it will likely take time for the changes to have an impact. In other words, the Whole Foods deal will probably not have much of an impact on AMZN stock — at least for this earnings report.
Meanwhile, there’s turmoil at Amazon Studios, a key executive recently departed because of allegations of sexual harassment claims. But this is probably not the only reason. According to the Wall Street Journal, the entertainment offerings have been lackluster — failing to attract large audiences. It’s also important to note that despite spending $4.5 billion on original content, Amazon Studios had no wins at the recent Emmy Awards, in contrast to Hulu and Netflix, Inc. (NASDAQ:NFLX).
Watch for Signs of AWS Growth, or Lack Thereof
When it comes to the AMZN stock price, the cloud segment is really the most important business. It is not only growing at rapid clip but provides an outsized portion of the operating income. Essentially, Amazon Web Services allows for far-flung investments in areas like video, devices, delivery services, and so on.
Source:Statista
The problem is that growth has been decelerating. Last quarter, the segment posted a 42% increase in revenues. But this is down from 58% in the year-ago quarter.
Part of the fall off is only natural, as the revenue base is now at significant levels. But at the same time, the competitive environment is heating up. Microsoft Corporation (NASDAQ:MSFT) has been making significant strides. Oh, and Oracle Corporation (NYSE:ORCL) is even starting to wage a price war against AMZN. Even International Business Machines Corp. (NYSE:IBM) has been gaining traction, as seen with its latest earnings report.
Bottom Line On AMZN Stock
Investors in AMZN stock will definitely be focused on the upcoming holiday season. The good news is that there continues to be a secular shift towards e-commerce.
Yet even this market could be facing more competition. Just look at Wal-Mart Stores Inc (NYSE:WMT), which has been making a spate of acquisitions. But the company also has some major advantages, like its massive footprint of 5,300+ locations in the U.S. This is going to be critical for the logistics of the e-commerce platform.
Now it’s true that analysts are still quite upbeat on the prospects for AMZN stock. Consider that the consensus price target is $1,163, some 19.5% upside from current levels
But again, there are some notable risks — and yes, AMZN stock price has already been treading water. In other words, it may be better to hold off purchasing the shares until things settle from today’s earnings report.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
