Amazon.com, Inc. is expected to report earnings on Thursday (27/04), after market close. The report will be for the fiscal quarter ending March 2023. Amazon’s revenue is expected to increase, supported by its thriving cloud computing division, subscription services and advertising business, despite declining e-commerce demand amid faster rising costs and shrinking margins. In Q1 2023, Amazon’s EPS is expected to decline for the seventh consecutive quarter. According to Zacks Investment Research, based on 13 analysts’ estimates, the consensus EPS estimate for the quarter is $0.21 with a stock rating of #3 (hold). The reported EPS for the same quarter last year was $0.21.
In the last quarter earnings report, Amazon reported $0.03 EPS for the quarter, missing the consensus estimate of $0.15. Return on equity was positive by 5.33% and net margin was negative by 0.53%. The company had revenue of $149.20 billion during the quarter, compared to the consensus estimate of $145.72 billion. During the same quarter in the prior year, the company posted $1.39 EPS. The company’s revenue rose 8.6% year over year.
Meanwhile, J.P. Morgan analysts are feeling optimistic about Amazon’s imminent first-quarter earnings. In a research report, J.P. Morgan stated that Amazon remains the strongest internet company. According to them, the macro environment impacted consumer spending and first-quarter e-commerce trends “remained muted,” with growth slowing during the quarter, but improving from the previous quarter.
Amazon Web Services, which contributes the most to Amazon’s revenue, is expected to report revenue growth of only 14% in the first quarter, as businesses become more selective with their cloud computing spending. The slowdown is expected to continue and contribute to lower margins and profits, but Amazon is willing to sacrifice profits to maintain leadership and help clients through tough times.
The slowdown in its money-making section may put further pressure on Amazon to properly manage costs across the board. Expenses have been growing faster than revenues for some time due to inflation and rivals, but the market anticipates that from the second quarter topline growth will start to outpace expense growth, which will result in margin recovery after hitting a three-month low to the end of June, according to estimates.
Online sales are declining, but the market anticipates that they will start to pick up again in Q2 and pick up speed in the second half as they compete with softer comparables. Third-party sales in e-commerce are still slowing, but are expected to continue growing.
Amazon has seen customer growth since its boom during the pandemic but has remained steady over the past year. Advertising is currently one of the fastest growing parts of the business and is expected to see revenue rise above 15% in the quarter, but this is easing due to the broader slowdown.
If Amazon’s retail margins start moving higher in 2023, the stock will become an attractive option. Last year, the company achieved revenue of $514 billion, up from $470 billion in 2021. Following the secular trend of e-commerce and cloud adoption, the figure is expected to reach $600 billion within the next two to three years.
A consolidated profit margin of 10% on $600 billion in revenue equates to $60 billion in annual profit for Amazon. This, in turn, gives the stock a forward price-to-earnings (P/E) ratio of 16.7. For reference, the current market average P/E ratio is 22. Given these assumptions, there is confidence Amazon stock will outperform the market over the next five years, making it a great buy for individual investors right now.
Technical Overview
#Amazon shares soared during the COVID-19 pandemic, when the growth of its e-commerce and cloud businesses exploded, but now investors are worried about declining profit margins and weak cash flow. CEO Andy Jassy recently gave confidence to shareholders, he outlined why Amazon will improve its efficiency this year and generate better profits for the company.
Amazon shares increased on Friday by more than 3%, due to expectations that the e-commerce leader was benefiting from strong Q1 sales. According to an examination of company data, the Seattle-based tech giant saw stronger-than-expected sales in both North American and international markets.
The price closed 106.92 on Friday, and was stuck at the median line. Further upside is likely to retest the 50.0%FR level (114.00) of the August 2022 high (146.56) and January 2023 low (81.42), aligning with the 113.98 resistance recorded as the February 2023 high. Moving above 113.98, the asset could test the 61.8%FR level at 121.69. Meanwhile, on the downside the support that may be tested is 97.87, before moving further down.
The price is moving above the 20-day exponential average, the RSI is at 64 levels, obviously it has not entered overbought levels and the MACD is still consistently in the buy zone. A better report will lift the price, while a disappointing report will bring weakness.
Based on 36 Wall Street analysts that offered 12-month price targets for Amazon in the last 3 months. The average price target is $135.88 with a high estimate of $192.00 and a low estimate of $106.00. The average price target represents a +27.04% change from the last price of $106.96. Source: Tipranks
Meanwhile, Barclays raised their price target on Amazon from $130.00 to $150.00 – Credit Suisse Group raised target from $142.00 to $171.00 with an “outperform” rating – Goldman Sachs lowered their target price from $165.00 to $145.00 and set a “buy” rating. According to MarketBeat, the company currently has a consensus rating of “Moderate Buy” and a consensus price target of $144.53.
Click here to access our Economic Calendar
Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
