Amazon.com (NASDAQ:AMZN) stock went on sale in October, falling to a low of $1,664 per share from $2,021 early in the month. But that AMZN price won’t last. Amazon earnings come out Thursday after market close.
And those Amazon earnings should be spectacular. As Synergy Research said Amazon is “in a league of its own” in the cloud, with one-third of the market and a nearly 50% annual growth rate.
Amazon Web Services is the leading cloud provider in every region of the world, Synergy said. But the cloud world is still decades behind the regular Internet, as 44% of cloud data centers are still in the U.S. There’s more growth to come.
Analysts are expecting AMZN stock to report $56.97 billion in revenue and $3.29 per share of earnings when it reports after trade October 25 but they’re hoping for $3.44 per share. That would give it $11.34 per share of earnings for 2018, with the huge Christmas quarter still to come.
AMZN Has Pricing Power
Amazon has achieved pricing power in every growth market of the decade.
Amazon had over 100 million Prime members in April, now paying $119 per year for free shipping . Amazon’s costs to deliver streaming entertainment are lower than anywhere in the industry, thanks to its cloud network, and it’s rapidly locking-in cloud customers so its pricing there is less relevant as well.
Credit Suisse thinks higher postal rates will cost Amazon $1 billion more next year, but the company is already building its own last-mile delivery network.
Amazon’s size, and its huge store of data, is making advertising a new growth engine. The company can deliver actionable data without delivering personal information and, as with Prime, this is practically free money.
Startups are raising money to help brands optimize their presence on Amazon, and it’s replacing Facebook (NASDAQ:FB) as the most credible threat to Google search ads because its data is based on transactions.
All this gives it the cash flow to invest in new Prime content, in grocery delivery, in Alexa devices, and now in health care.
Atul Gawande has been named CEO of Amazon’s health insurance venture with JP Morgan Chase (NYSE:JPM) and Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B). At minimum, this gives Amazon greater visibility into its own costs after acquiring Pillpack, an online pharmacy, for $1 billion in June. This sounds like a lot of spending, but it’s not when the real aim is to gain a presence in a market worth nearly $1 trillion.
Anti-Trust Fears for Amazon Are Overblown
It no longer matters where Amazon puts its vaunted HQ2. It’s creating jobs everywhere, so it’s likely to go to Washington, D.C., where it can maximize its investment in government.
Who would you rather be ruled by, Donald Trump or Jeff Bezos?
Lawyers have been twisting themselves like yogis trying to make antitrust law cover Amazon, because it has no monopolies. European regulators have opened an investigation, worried that it’s using data from its marketplace of sellers to introduce its own products, as Kroger (NYSE:KR) and Walmart (NYSE:WMT) have been doing for decades.
The idea is that, while Amazon is benefiting consumers now, its very size makes it a potential monopoly because competitors can’t compete. But they can use Google or Microsoft (NASDAQ:MSFT) clouds, they can use FedEx (NYSE:FDX) or Alibaba delivery. They can use Amazon itself, as millions of small merchants already do.
By spreading its investment across huge swathes of the economy, Amazon maintains headwinds that protect it from government intrusion.
For example, in retail where Amazon has been accused of causing an apocalypse, it’s still less than half the size of Walmart by revenue.
The Bottom Line for Amazon Earnings
Amazon can deliver whatever numbers it wants. For investors with a long-term time horizon, five years or more, it’s the market’s easiest buy order.
Traders were already buying AMZN back in the pre-market October 25, the stock rising nearly $50 per share. Inflation, political uncertainty and the trade war will continue to buffet the stock, and you may get another shot below $1,800 after today.
But you may not.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA, MSFT and AMZN.
