Amazon Earnings: What to Look For
Key Takeaways
- Analysts estimate Adjusted EPS of $8.70 vs. $8.71 in Q1 2019.
- Amazon Web Services cloud sales expected to rise 33.1% YOY.
- COVID-19 is sharply boosting corporate revenue amid soaring online orders.
Amazon.com Inc. (AMZN), the giant e-commerce company, has achieved a feat that many investors on Wall Street would regard as impossible in a stock market that's fallen sharply off its highs this year. Amazon's shares have soared more than 40% in the past month alone to a new record high as of early afternoon trading on Thursday, giving the company a market value of more than $1.2 trillion. The simple reason is that Amazon's business is booming. Online orders for everything are soaring as consumers and employees stay at home amid government lockdowns globally due to the coronavirus pandemic. Investors will be watching closely whether Amazon can maintain that growth when it reports earnings. It's expected to release results on April 23, though it has yet to formally announce a date. For Q1, analysts expect Amazon to report surging corporate and cloud revenue, while adjusted earnings per share will be flat. Historically, Amazon investors have focused on longterm revenue growth rather than earnings.
In that report, investors will focus not only on Amazon's massive e-commerce business, but especially on a key metric of the company's growth: sales in its fast-growing cloud computing segment, Amazon Web Services (AWS). AWS's cloud business is the world's largest, and it has the highest profit margins by far of any Amazon business.
These powerful positive trends are why Amazon's share price was rising even before the COVID-19 crisis. In the past 12 months, it's posted a total return of 25.1% compared with -4.2% for the S&P 500.
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Amazon has posted consistent year-over-year (YOY) quarterly revenue growth between 17.0% and 42.3% every quarter for nearly four years. Based on analyst predictions, it's likely that the company's expected $72.7 billion revenue for Q1 2020 will be roughly double that of just three years prior, in Q1 2017. Last quarter, revenue grew 20.8% to $87.4 billion, and analysts expect that 21.8% YOY growth for Q1 2020 will surpass that rate of increase.
Amazon's adjusted EPS performance has been erratic as Chief Executive Jeff Bezos has focused on longterm growth instead of quarterly profits. The past three years, for example, have seen giant swings in profits that include two quarters of YOY losses and quarters with 200% growth (Q2 and Q3 2018). Last quarter, Amazon's adjusted EPS grew by 16.0% YOY to $9.43, dramatically outperforming analyst expectations. For Q1 2020, analysts expect adjusted EPS to be roughly even compared with a year prior, declining by 0.2% to $8.70.
| Amazon Key Metrics | |||
|---|---|---|---|
| Q1 2020 (Estimate) | Q1 2019 | Q1 2018 | |
| Adjusted Earnings Per Share (in dollars) | 8.70 | 8.71 | 5.21 |
| Revenue (in billions of dollars) | 72.7 | 59.7 | 51.0 |
| AWS Revenue (in billions) | 10.2 | 7.7 | 5.4 |
Source: Visible Alpha
A major contributor to Amazon's longterm success is steady growth in its highly profitable Amazon Web Services segment. This portion of the company provides corporate and individual clients with cloud services used to run websites, databases, and a variety of programs. It is less costly for many companies than buying and operating independent servers. AWS revenue is a key metric for investors to watch because cloud profit margins are extremely high and contribute a disproportionate percentage of the Amazon's profit. By contrast, while most of Amazon's sales come from e-commerce, these sales have relatively low profit margins.
AWS sales have grown at an impressive clip overall and in recent Q1 periods, climbing by 48.7% YOY to $5.4 billion in Q1 2018 and by 41.4% YOY to $7.7 billion in Q1 2019. Analysts predict this trend will continue, with projected YOY growth of 33.1% to $10.2 billion in Q1 2020.
AWS's momentum is illustrated by the fact that estimated Q1 2020 sales will be roughly double what they were barely more than 2 years ago, in Q4 2017. That growth, and the rich margins that go with it, may be crucial to help even Amazon ride out the economic disruptions that will continue due to the coronavirus pandemic.
Article Sources
MarketWatch. "Amazon stock hits record high on hopes for a coronavirus-related boom," Accessed April 15, 2020.
Yahoo! Finance. "Earnings Estimate Calendar," Accessed April 16, 2020.
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