Amazon (AMZN) 2nd Quarter Earnings: What to Expect

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Retail giant Amazon (AMZN) is set to report second quarter fiscal 2017 earnings results after the closing bell Thursday. And it would be a gross understatement to say that investors’ expectations are flying high.

For the first time in its history, AMZN stock broke above half a trillion dollars, which is a massive number when considering Amazon’s modest beginning in 1995 as online bookseller. Fast-forward two decades, not only are the likes of Nike (NKE) and Sears (SHLD) relying on Amazon for their sales, more than half of Fortune 500 companies rely on Amazon’s AWS cloud platform to run their business. And latter, which generates the bulk of Amazon’s profits, will be in focus Thursday.

Likewise, the company’s Prime membership total, which is responsible for recurring revenue, fueling perks such as free two-day shipping, will be carefully watched.

In the three months that ended June, the Seattle-based company is expected to earn $1.42 per share on revenue of $38.18 billion. This compares to the year-ago quarter when the company earned $1.78 per share on $30.4 billion in revenue. For the full year, ending December, EPS is expected to rise 37% year over year to $6.72 per share, while full year revenue of $166.33 billion would rise 22.3% year over year.

Breathtaking numbers is what Amazon is now known for. In this case, the fact that Amazon, which is now valued at more than $500 billion — almost twice the size of Wal-Mart (WMT) — is still growing revenue north of 20% annually is nothing short of remarkable. Beyond the top and bottom line numbers, however, how AWS (Amazon Web Services) performs will dictate the direction of AMZN stock. This is because AWS accounted for more than half of Amazon's operating profits in 2016, up ten percentage points from 2015.

In other words, AWS carries tons of muscle, despite account for less than 10% of overall revenue. But despite being the industry’s clear-cut leader, competing cloud platforms from Microsoft (MSFT) and Alphabet (GOOGL) have emerged as credible threats. In its most-recent quarter, Microsoft’s Azure cloud revenue surged 97% year-over-year. On its own, that growth rate is impressive. Remarkably, it still marked an acceleration of four percentage points from the previous quarter. Analysts suspect that Microsoft is taking share.

Will Amazon’s AWS results affirm this theory? In the first quarter AWS revenue rose 43% year over year to $3.66 billion, above Street expectations of $3.63 billion. AWS forecast range from $3.7 billion to $4 billion, suggesting 42% growth. Second quarter profit margins will also be scrutinized Thursday, particularly as Amazon continues to invest in ways to strengthen its logistics, while also expanding internationally.

Suffice it to say, there will be tons of fireworks Thursday. Amazon stock closed during Wednesday’s regular session at $1,052.80, up 1.24%. The stock has risen 40% year to date, ranking as the second-best performer among the FANG names, underscoring the level of faith investors have in CEO Jeff Bezos’ ability to give consumers what they want before they realize they need it.

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.