It’s not likely to be this earnings season’s most-watched report. That top honor arguably belongs to Apple (NASDAQ:AAPL), which will tell shareholders how it did on July 31st. But, the second quarter report due from Amazon.com (NASDAQ:AMZN) after the closing bell rings on Thursday is apt to be the second-most-watched earnings news from Q2.

Investors, professional and amateur, are expecting another resounding success. Analysts are modeling yet another round of double-digit earnings growth, and have good reason to suspect the Amazon earnings figures will actually exceed expectations. Average investors, meanwhile, have continued to step into AMZN stock, ignoring just how overbought it’s become of late.

Whatever’s in the cards, wise investors need to know what exactly what could make or break the stock following the release of the company’s quarterly results.

Amazon Stock Earnings Preview

For the quarter ending in June, analysts collectively expect e-commerce giant Amazon to report per-share earnings of $2.50 on revenue of $53.27 billion.

That sales outlook is 40% better than the year-ago top line of $37.9 billion, and at the upper end of the guidance range of $51 billion to $54 billion the company offered with its Q1 numbers. And, its projected profit would be enormously better than the 40 cents per share it earned in the second quarter of 2017.

Don’t get too excited. The year-ago figure was the outlier. Spending on technology and content was up 43%, and marketing costs grew 44% year-over-year.

Still, though uneven, the Amazon earnings trend is a positive one.

You can mostly thank Amazon Web Services, or AWS, for that income growth. Although it’s the smallest arm as measured by revenue, it’s the biggest in terms of profits. In the first quarter, AWS generated $1.4 billion worth of operating income on $5.44 billion in sales, while North America’s retail sales tally of $30.7 billion only added $1.15 billion worth of operating income to the bottom line. The company’s international e-commerce arm continues to grow revenue, but also continues to grow its loss.

Analysts are looking for more double-digit revenue growth for the quarter in question, but all eyes will be scrutinizing the company’s cloud computing arm more than any other. It, however, is just one of three pieces of the Amazon earnings investors should examine closer than others.

3 Things to Watch in AMZN Stock

1. Amazon Web Services: Revenue growth is undeniable, but its historical growth came at a time when names like Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) were less than serious about competing. As competition heats up, the question is, can the company maintain Amazon Web Services’ profit-making margins? The first quarter’s operating margins for Amazon Web Services were 25.7%.

Regardless, Cowen is looking for second quarter AWS revenue of $5.95 billion, up 40% from Q2-2017’s top line, while Stifel is looking for an even $6 billion.

2. Operating Cash Flow: In the Amazon earnings report for Q1, the company touted its trailing-twelve-month operating cash flow of $18.2 billion. Digging deeper into its posted financial statements, however, it’s noteworthy that the first quarter’s operating cash flow on its own was negative $1.79 billion, worsening from the negative $1.62 billion reported for the same period of 2017.

It’s possible some of the cash-flow-sapping costs could have been seasonal, though nothing seemed out of the ordinary. It’s equally possible that spending and expenses have moved past a critical tipping point just within the past few quarters.

3. Subscription Service Revenue: It’s not a number highlighted, or even specifically pointed out, in recent Amazon earnings releases. Its subscription revenue tally, however, is a figure worth watching if for no other reason than it’s growing so nicely. The first quarter’s total of $3.1 billion was 56% better than Q1-2017’s.

It matters, for a couple of related reasons. One of them is, this is where revenues related to Amazon Prime memberships are booked, and it’s high margin revenue (though the company doesn’t pinpoint a hard figure). The other is, Prime members tend to spend a lot more at Amazon.com than non-Prime members do, meaning a bigger top line here naturally leads to greater overall revenue.

Bottom Line

Amazon has topped earnings estimates for three straight quarters. In fact, it’s beat estimates in six of the past eight quarters. The odds suggest another beat is in store.

Traders are certainly counting on a solid report anyway, with AMZN stock just reaching another record high, up more than 80% for the past twelve months.

That kind of move can prove problematic, however, as it leaves no room for anything but perfection. Indeed, even if there’s only one weak point that’s offset by another arm, or if the company offers guidance that’s less than thrilling (or management shares a thought with the wrong wording), the big gain could easily turn into a profit-taking party. The spring is coiled anyway.

Just be ready for any contingency in light of the stock’s overbought condition. It’ll have to beat estimates and deliver better-than-expected guidance to sidestep a “sell the news” scenario.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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