Amazon earnings ()
Amazon (AMZN) is set to report fourth quarter fiscal 2017 earnings results after the closing bell Thursday. And the main topic on the call with analysts will likely relate to the company’s recent entry in the healthcare industry.
The retail giant, earlier this week, just joined forces with JPMorgan (JPM) and Berkshire Hathaway (BRK.A) (BRK.B) to form an independent company that can potentially change how we view healthcare. The consortium said their partnership will “address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs.” Adding, their combined effort will be “free from profit-making incentives and constraints.”
In other words, Thursday’s earnings results from Amazon will be about more than the performance of its cloud platform AWS (Amazon Web Services). While AWS, thanks to its low-cost service offerings, is still the cash cow for Amazon, the company is now poised to disrupt the $3.3 trillion healthcare market in the United States, making it an immediate force to be reckoned with. But until the healthcare business gets off the ground, AWS will be how Amazon keeps its lights on.
In that vein, Wall Street expects the AWS business to grow at around 40% year over year, which has been the average growth range in the previous three quarters. Likewise, operating income margin will be another important metric. In the third quarter, AWS posted operating income of $1.17 billion on $4.58 billion in revenue, which comes out to profit margin of 25.5%. Assuming those metrics are flat to higher, analysts would applaud the performance.
What’s more, despite the emergence of cloud competitors, mainly Microsoft (MSFT) and Google (GOOG, GOOGL), Amazon has remained aggressive with its pricing. Combined with the rapid rate of adoption opportunities in cloud, there are still tons of tailwinds for Amazon to deliver not only a solid quarter, but also issue confident guidance for fiscal 2018.
In the three months that ended December, the Seattle-based company is expected to earn $1.85 per share on revenue of $59.83 billion. This compares to the year-ago quarter when the company earned $1.54 per share on $43.74 billion in revenue. For the full year, EPS is expected to be $4.32 per share, compared to $4.90 per share a year ago, while full year revenue of $177.26 billion would rise 30.4% year over year.
Beyond the top and bottom line metrics, analysts will listen for hints about capital expenses to get a sense of how to model for 2018. Amazon continues to invest in ways to strengthen its logistics, while also expanding internationally. How much of these investments, combined with costs associated with the healthcare venture, will impact the company’s bottom line? Whole Foods, which Amazon acquired last year, will also be a hot topic.
All told, with the company's retail business operating on all cylinders and AWS still the go-to cloud platform for Fortune 500 companies, it would be a mistake to bet against Amazon. Plus, the improved environment for global consumer spending, combined with optimism over tax reform, the stars are aligning for another stellar year for Amazon.
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.
