Credit: Shutterstock photoAmazon AMZN will report third quarter results on Oct 22 after the market closes and given its Zacks Rank #3 (Hold) and its Earnings Expected Surprise Prediction (ESP) of +380%, the company will likely post a positive surprise this quarter. We generally don't recommend sell rated stocks (Zacks Rank #4 or #5) going into an earnings announcement.
Its surprise history is also good with the last four quarters averaging at 72.9%.
Factors In Play
Investors warmed to this online retailer after the last earnings announcement because of its cloud computing prowess. However, shares are already trading at a significant premium to the peer group, so there's unlikely to be as strong a reaction this time round. On the other hand, expectations are soaring, thus increasing pressure on the company to deliver better.
Amazon's latest cloud event was a good indication of how far it's come in that business. While its miles ahead of everyone else, Amazon is by no means at rest. The company is now increasingly collaborating with other cloud players to move from the mere hosting of other people's data to offering enterprise solutions of its own. And enterprises are responding, as far as we can tell. The best part of AWS and the reason investors love it, is the fact that Amazon actually generates something of a profit margin here.
The traditional retail business is about operating at razor-thin margins, with any profitability coming from scale. This is unlikely to change any time soon because of Amazon's continuing investments to build market share and expand into new segments. Amazon Prime remains a trump card here, helping profitability in the last quarter.
The company has been increasing loyalty with these Prime memberships and packing in so many goodies that it's hard for customers to move away. Competitors find this hard to deal with because Amazon is so cheap with so much variety, scale, logistical expertise and customer service.
Encouraging Numbers From 2Q
AWS revenues jumped 81.5% in the last quarter with the operating margin expanding 1,377 bps year over year to 21.4%. Accounting for just 8% of revenue, AWS comprised over 36% of profit. On the retail side of things, combined segment operating profits jumped 52.3% sequentially and 166.1% year over year.
Other Stock Picks
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Chubb Corporation CB , earnings ESP of +1.02% and a Zacks Rank #1.
Allegiant Travel Company ALGT , earnings ESP of +0.76% and a Zacks Rank #2.
Capital One Financial Corporation COF , earnings ESP of +2.08% and a Zacks Rank #3.
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CAPITAL ONE FIN (COF): Free Stock Analysis Report
CHUBB CORP (CB): Free Stock Analysis Report
AMAZON.COM INC (AMZN): Free Stock Analysis Report
ALLEGIANT TRAVL (ALGT): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
