AMZN, BABA Earnings Preview: E-Commerce Giants to Report

Amazon and Alibaba, two e-commerce giants on different sides of the world, are scheduled to report earnings Thursday.

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The two biggest heavy hitters in e-commerce, Amazon (AMZN) and Alibaba (BABA), are scheduled to report quarterly earnings Thursday, and market expectations are high, according to Wall Street forecasts. 

Amazon Earnings and Options Trading Activity 

Many analysts have said they have high hopes for AMZN’s results though the options market might be bracing for volatility, given recent activity (see below). The online marketer’s earnings will reflect holiday sales that AMZN said included record days for Black Friday and Cyber Monday.  

AMZN said Cyber Monday was “the single biggest shopping day worldwide in the company’s history,” surpassing Prime Day in July, according to a press release. 

While several analysts said they're looking forward to hearing more about the results and what kind of margins were maintained, yesterday’s announcement that AMZN is partnering with JPMorgan Chase (JPM) and Berkshire Hathaway (BRK) to form an independent healthcare company—aimed at cutting costs for their companies and their U.S. employees—appeared to catch investors off guard. A number of analysts said Tuesday that they’re anxious to hear how the three expect to implement those plans and what the costs—and expected cost savings—might be.      

Beyond that, there are plenty more topics several analysts said they are looking for updates on from AMZN executives. Among them:  

  • Growth expectations for Prime membership in light of the recent price hike 
  • Latest projections for Amazon Web Services (AWS)
  • Integration of the Whole Foods acquisition and potential cross-platform opportunities (This will be the first full quarter of Whole Foods results, analysts noted.)
  • Selection process for the company’s second headquarters (“HQ2”) 

AMZN also could post a balance sheet adjustment tied to deferred tax balances, according to several analysts.  

The consensus earnings estimate from third-party Wall Street analysts is $1.85 a share, according to the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. A year ago, AMZN earned $1.54 a share, which was higher than analysts’ expectations of $1.49 per share. Revenue is projected to jump 37% to $60.03 billion from $43.74 billion a year ago, which, at the time, missed Wall Street’s $44.86 billion forecast. 

The options market has priced in an expected share price move of 6.4% in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.  

Call activity has been higher at the 1470 strike while put activity is concentrated at the 1420 strike. The implied volatility sits at the 98th percentile. (Please remember past performance is no guarantee of future results.) 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.  

AMZN, 12m

FIGURE 1: CHASING $700 BILLION.

Shares of AMZN have advanced more than 77% since last February, mostly following the S&P 500 (SPX) gains. Since the beginning of the year, shares have added another 22% in value as they march toward $700 million in market capitalization. Chart source: thinkorswim® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Alibaba Earnings and Options Trading Activity 

BABA’s hot holiday sales moment was its signature shopping spree known as Singles Day in November, which BABA reported rang up a 39% jump in sales to a record $25.3 billion in gross merchandise volume. At the time, SunTrust Robinson Humphrey analyst Youssef Squali wrote “strong Chinese consumer buying, four-times growth in global brands, strength in cross-border trade, rise of New Retail (selling strategy), and ubiquity of mobile drove this outsized performance,” in a note to clients.

Several analysts noted that a potential drag on earnings for the quarter could be BABA’s consolidation of its logistics business, as well as its efforts to stave off competition in the digital entertainment space, according to the Wall Street Journal. 

In the third quarter, BABA reported earnings of $1.29 a share, well ahead of the $1.04 a share Wall Street was projecting. Revenues climbed to $8.28 billion, outpacing analysts’ expectations of $7.78 billion.  

Revenue for the fourth-quarter is expected to jump to $12.13 billion, more than 57% above the year-ago period of $7.67 billion, according to the consensus earnings estimate from third-party Wall Street analysts, as charted on the Earnings Analysis tab. Earnings per share are projected to reach $1.65, ahead of the $1.30 a share BABA reported in the year-ago period. Those results also beat Wall Street’s expectations.

The options market has priced in an expected share price move of 5.6% in either direction around the earnings release, according to the Market Maker Move indicator.  

Call activity has been higher at the 200 and 205 strike lines while put activity has been concentrated at the 190 strike. The implied volatility sits at the 100th percentile. (Please remember past performance is no guarantee of future results.) 

BABA vs. SPX, 12m

FIGURE 2: RACING THE SPX.

BABA shares have more than doubled in price in the last year. BABA shares were handily outpacing the SPX’s gains during some periods, but SPX began to outrun BABA shares starting in December. BABA’s market cap stands at about $511 billion. Chart source: thinkorswim® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Looking Ahead

More earnings are ahead this week from Alphabet (GOOG) on Thursday, and some insight into how things are stacking up in the oil patch might come with Friday’s quarterly results from heavyweights ExxonMobil (XOM) and Chevron (CVX). Friday also brings the government’s regularly scheduled employment and payroll reports.

Good Trading,
JJ
@TDAJJKinahan

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