Credit: Shutterstock photoAmazon.comAMZN will report fourth-quarter 2016 earnings on Feb 2 after the bell.
The company has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -2.13%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates. We don't recommend Sell-rated stocks (Zacks Rank #4 or #5) going into the earnings announcement.
Amazon's earnings surprise history hasn't been much impressive as the company missed estimates in two of the last four quarters.
Over the last one year, the stock has however outperformed the Zacks Electronic Commerce industry. It has gained 44.46% compared with the industry's gain of 41.77%.
What Happened in the Last Reported Quarter
International/North America/AWS Mix: The North America segment accounted for around 58% of sales, representing a sequential and year-over-year increase of 6.8% and 25.8%, respectively. The International segment accounted for 32%, up 7.8% sequentially and 28.3% year over year. The AWS segment was up 12% sequentially and a massive 55% year over year with revenue share at nearly 10%.
Prime: Amazon continued adding new features and benefits for Prime members . The company rolled out Prime exclusive original TV shows, movies and music streaming services. It introduced Twitch Prime (Prime benefits for gamers), Prime Reading (Prime exclusive free reading service), Audible Channels (free, unlimited short-form digital audio service) and added new features to Prime Photo service.
Heavy investments: Amazon's third quarter earnings miss was primarily due to a spike in operating expenses mainly, which increased as a result of buildout of fulfillment centers in preparation for the holiday season. Costs also escalated due to the company's increased spending on original TV shows and movies. Amazon Web Services (AWS) and India expansion-related expenses also resulted in higher spending.
Guidance: Fourth quarter revenues are expected to include a 60 bps positive FX impact and come in around $42-45.5 billion. Operating income is expected to be between $0 and $1.25 billion.
What We Are Watching
Retail : Amazon's retail business remains very hard to beat on price, choice, convenience, you name it. The company has a solid loyalty system in Prime and its Fulfillment by Amazon (FBA) strategy. Content addition continues to add selection to Prime memberships. If Amazon is able to replicate its domestic success internationally, investors could see far more growth. At the moment, international contributes a third of revenue but generates just a fraction of profits.
AWS: Amazon Web Services is the cash cow for Amazon. The business generates much higher margins than retail, so it has a positive impact on Amazon's profitability. We are optimistic about the functionality, partner ecosystem and the experience AWS offers and believe this to have added to its customer base.
IoT: One area of potential growth is devices and IoT. It's probably not right to ignore the growing capabilities of Echo and Alexa in this regard and how they are being received by hardware partners.
IoT devices/technologies are unlikely to have a very big impact on results right now (revenue contribution won't be material near term), but it could very well supplement the rest of the business by making it easier to buy from Amazon.
Amazon.com, Inc. Price, Consensus and EPS Surprise
Amazon.com, Inc. Price, Consensus and EPS Surprise | Amazon.com, Inc. Quote
Stocks to Consider
Here are some stocks that, as per our model, have the right combination of elements to post an earnings beat this quarter:
Oclaro, Inc. OCLR with an Earnings ESP of +10.53% and a Zacks Rank #2 .You can see the complete list of today's Zacks #1 Rank stocks here .
Qorvo, Inc. QRVO with an Earnings ESP of +0.94% and a Zacks Rank #3.
Twilio Inc. TWLO with an Earnings ESP of +8.33% and a Zacks Rank #3.
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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
Qorvo, Inc. (QRVO): Free Stock Analysis Report
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Twilio Inc. (TWLO): 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.
