Amazon is reporting earnings on February 2. Besides retail revenue, which is expected to be strong, investors should focus on revenue from cloud services and innovations that are in the pipeline.
Analyst consensus expectations for AMZN are for solid Q4 growth
Online sales are now Amazon’s biggest revenue source
Cloud computing, payment services, and Alexa may help earnings
There’s no question that the pandemic has acted as a catalyst for online retailers. So it wouldn’t be out of reach to expect 2020 to be a strong year for online shopping giant Amazon (AMZN). And let’s not forget the 74% boost to its share price in 2020, running circles around the S&P 500’s gain of 16%.
That storyline is expected to play out in Q4 2020, when AMZN reveals its earnings on February 2.
But when the pandemic subsides—and let’s keep the faith that it will—can AMZN beat its own growth records that were driven by COVID-19? And how will competition from retailers such as Walmart (WMT) and Target (TGT) impact AMZN’s growth?
AMZN is under pressure to show continuous innovation for its retail business and beyond. It appears to be up to the challenge, at least in the foreseeable future—AMZN still may have room to grow in penetrating e-commerce levels, expanding fulfillment capacity, increasing cloud computing, and broadening a plethora of other products and services.
FIGURE 1: CAN AMZN KEEP PACE? Share price of Amazon (AMZN—candlestick) has generally outperformed the Consumer Discretionary sector ($IXY—purple line) although since November AMZN has been trading sideways, underperforming $IXY. Data source: Nasdaq, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
AMZN’s biggest source of revenue now comes from online sales. Over the last year, AMZN said it has added more than 100 new facilities and plants in the United States and Canada to meet increased demand for retail.
Q4 included Amazon Prime Day. Make that Prime Days since the annual summer shopping extravaganza day moved to October 13 and 14 and was held in 19 countries. Throw in Black Friday and Cyber Monday, and you have some strong retail days in Q4. AMZN reported that Cyber Monday was its biggest shopping day in its history. And third-party sellers gained attention. According to Jeff Wilke, AMZN’s CEO of Worldwide Consumer, Prime Day sales from third-party sellers surpassed $3.5 billion, an increase of nearly 60% from the prior year.
Retail growth should also register from its Amazon Go stores, along with the surge in online grocery shopping, including its Amazon Fresh service.
Combined with the holiday sales rush, AMZN is expected to exceed $100 billion in quarterly revenue for the first time ever in the fourth quarter, according to AMZN’s own quarterly guidance. Net sales are expected to be between $112.0 billion and $121.0 billion, or to grow between 28% and 38% compared with Q4 2019, though the company noted $4 billion in COVID-19 related costs are expected for Q4.
As more people transition to working from home and increase their reliance on digital services, AMZN’s cloud computing division, called Amazon Web Services (AWS), has also seen increased demand for its services.
Microsoft (MSFT) is the largest enterprise-cloud vendor in the world with huge leads over AWS, according to Cloud Wars. There is also competition from IBM (IBM), Alphabet (GOOGL), and Oracle (ORCL). And though AWS’ growth rate has slowed, the cloud service is not just fluff. Revenue from AWS contributed a sizable $11.6 billion in Q3, compared to $8.9 billion for Q3 2019, accounting for 12.1% of AMZN’s revenue last quarter.
AMZN continuously introduces new products and services—home security cameras, new Echo smart speakers and Echo dots, additional Alexa features to create a more user-friendly experience, and an array of smart devices.
On the earnings call, AMZN leadership might shed some light on other sources of revenue, like its payment services, adding on to its Palm Scan System, and its Amazon One, which has been implemented in some of its Amazon Go stores. Or maybe it’ll chat about fintech investments, its entry into the pharmacy business, or other tie ups that might help AMZN move forward with its electric van, drones, and other delivery mechanisms.
To expand these and other initiatives, AMZN has added tens of thousands of employees over the last year or so, making it the nation’s second-largest employer with a workforce in the U.S. totaling more than 800,000 people, according to the Wall Street Journal. Its unparalleled growth last year included adding more than 400,000 employees, bringing its global workforce to more than 1.1 million. The company has added thousands of jobs to corporate offices across America, including in large hubs like New York, San Diego, and Dallas.
Alexa won’t answer what AMZN has planned for 2021, but maybe people on the earnings call will.
AMZN reported that net income increased to $6.3 billion in the third quarter, or $12.37 per share, compared with net income of $2.1 billion, or $4.23 per share, in Q3 2019.
For Q4, analysts on average expect earnings of $7.17 billion, compared to $6.47 billion last year.
TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.