The NASDAQ (COMP) broke through the 6,000 mark on Tuesday right before one of the most important days in tech earnings. What’s so important about today? The combined market cap of the four mega cap companies reporting today is about $1.75 trillion. Three of the companies are Microsoft (MSFT), Alphabet (GOOG, GOOGL), and Intel (INTC). The fourth company releasing first-quarter results after the bell is ecommerce giant Amazon (AMZN).
Since its 1997 IPO, AMZN has emerged as a global market leader in ecommerce through CEO Jeff Bezos’ direction and a relentless focus on the customer. In his 2016 letter to shareholders, he wrote “there are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great”.
That obsessive focus on customer wants, led AMZN to develop Prime—the company’s $99 annual membership that offers free two-day shipping on over 50 million items and other perks.
Walmart (WMT) recently tested a similar program, ShippingPass, but decided to scrap it in favor of offering free two-day shipping on orders of $35 or more. WMT also just announced it would start offering variable discounts on items that customer’s purchase online and choose to pick up in store, leveraging its brick and mortar locations.
Taking a page out of WMT’s playbook, AMZN is heavily investing in distribution. It’s in the process of building multiple 1 million square foot distribution centers throughout the United States. To reduce its reliance on third-party distribution, it also announced it would lease 20 Boeing 767 widebody freighter jets to operate its own air-cargo network.
“Revenue growth and profitability of Amazon has been difficult for analysts to estimate as the company continues to invest heavily in areas that include its web services operation, fulfillment centers and media content,” according to a recent Investor’s Business Daily article. For the first quarter, AMZN is expected to earn $1.03 per share on revenue of $35.39 billion, up 21% from Q1 2016, according to consensus third-party analyst estimates.
Amazon Trading and Recent Options Activity
AMZN shares just hit an all-time high of $923.72 on April 5; the stock remains close to those highs, $909.29 at yesterday’s close, as the company gets ready to report Q1 earnings. It’s up just over 20% year-to-date compared to just under a 12% gain for the NASDAQ (COMP).
The options market has priced in about a 3.5% potential stock move in either direction around AMZN’s earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term options trading at the April 28 weekly expiration, calls were active at the 900, 910, and 920 strike prices while puts were active at the 900 and 910 strikes. The implied volatility sits at the 60th percentile, towards the higher end of the range.
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.