Amazon (NASDAQ:AMZN) reported earnings last night the stock spiked to $1970 on the headline. And therein lies today’s point. If you hold AMZN stock for the long term you are going to make money.
This is a company that has proven for over a decade that it can execute better than any other in history. The more impressive piece of this that they have done it in so many different businesses.
So this morning’s relatively modest greens are merely an opportunity to get long. AMZN came into the event up 27% year-to-date. This is also up 104% in two years and 520% in five. Clearly AMZN stock is a winner. I remember recommend to buy a dip not too long ago at $800 per share.
AMZN Earnings
Yesterday, management beat all metric forecasts but they crushed the profit line. This is where critics hammered AMZN for years over its thin margins.
The team delivered 50% more earnings than was expected — $7.42 per share vs an expected $4.72. So now the critics are complaining about the fact that they merely met the sales forecast insinuating slower growth concerns.
There were also concerns over the advertising sales. They reported growth of 36% down from 100% for the last four quarters. Year-over-year ad revenues are only up 17% — down from 46% last quarter.
Overall, advertising is still a small contributor for this behemoth so it doesn’t spell trouble in any shape. This is a high margin business but clearly AMZN is healthier than ever in that regards.
AMZN stock is off its headline spike, but partly because of Facebook (NASDAQ:FB) earnings. That rally raised the trader expectations for the remaining members of the FANG gang. This leaves Alphabet (NASDAQ:GOOGL) next week.
Last year, I wrote about the fact that the profits from Amazon would shock us soon. Last night’s report supports my theory and I bet there is even more to come.
Amazon’s Growth Isn’t Done
The lead that they have in Alexa voice technology is tremendous and they will license the heck out of it. I bet that all of our appliances and machines will eventually be voice enabled.
For proof refer back to the old Star Trek movies and you see trend take shape. The engineers have been dreaming of this for decades, and now they have the technology to do it.
So is Amazon done being a growth company? Absolutely not.
Growth will naturally take breaks as the company finds a new niche to mine. The AMZN team is a proven innovator and they will put their extra margins to good use. Soon enough, we’ll learn about their next successful venture and it will kickstart growth once more. There is a good chance it will be the advertising segment as they nurture new markets there.
Trading AMZN Stock
For those who prefer trading AMZN stock for the shorter term, there are important lines to know.
Since it moved above $1740 and $1775, AMZN has been in a technical breakout that targets $2000 per share or higher. Last night’s jump on earnings got it within that range.
$2000 is likely to offer resistance as it was the ledge for a giant correct last October. The S&P 500 recently faced its October accident scene and won, now it’s Amazon’s stock turn and it too will do it.
Pivot zones like this present resistance because it is where bulls and bears already agree on price so they fight it out hard. This creates price congestion and that translates into resistance on the way up. But once the bulls win the level over, they can use it as support for the next leg higher.
If the bears succeed in breaking through $1855 then $1820 areas, they could target $1700 or lower. This is not a forecast but it is the immediate bearish scenario in case it corrects.
In short, I have no doubt that AMZN will set new highs in the coming months. It might not be a straight shot to the moon because it will need the help of the equity markets in general. If I had only one stock to own for ever, Amazon would be it for as long as this team is in charge.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
