Shares of Amazon (AMZN) have seemingly gone nowhere over the past six months. The stock, currently at around $3,200, is right inline with both its 50-day and 200-day moving averages of $3,207.20 and $3,183.18, respectively. This is even though Amazon has executed at near perfection, topping revenue and profits estimates in ten straight quarters. But the shares might soon be on the move.
The e-commerce and cloud giant is set to report fourth quarter fiscal 2020 earnings results after the closing bell Tuesday. Evidenced by an almost 40% rise in total net revenue in the third quarter which included operating margin of 6.4% of sales, compared to the 5.1% consensus, Amazon’s focus on profitability has paid dividends, dispelling prior concerns about margin pressure. The company continues to benefit from a combination of factors.
Aside from the strong demand acceleration caused by the pandemic, Amazon’s strategy to grow its Prime members, while also getting them to spend more during each transaction has been effective. Elsewhere, despite increased competition from Microsoft’s (MSFT) Azure, Amazon’s dominant AWS cloud platform, which is still growing at near 40%, is still a strong profit generator. In the third quarter AWS revenues surged to $11.6 billion, accounting for 12% of total revenue. There is plenty of evidence to suggest that the company’s market share gains are here to stay beyond the pandemic.
In the three months that ended December, the Seattle-based company is expected to earn $7.19 per share on revenue of $119.66 billion. This compares to the year-ago quarter when earnings came to $6.47 per share on revenue of $87.44 billion. For the full year, earnings are expected to rise 52% year over year to $34.94 per share, while full year revenue of $380 billion would rise 35.4% year over year.
As noted, the company has been a huge beneficiary of the pandemic-driven acceleration of both online shopping and the shift to cloud computing. In the third quarter, revenues surged to $96 billion. Not only was that more than $3 billion above the company’s own forecast, it also easily beat consensus estimates by $3.54 billion. The growth was driven by 40% rise in the North American segment where revenue accelerated sharply from last year's 24%. International revenue, meanwhile, more than doubled from to 37%.
Notably, AWS revenue surged 29% year over year, with operating income climbing 56% year over year to $3.5 billion. With customers such as Netflix (NFLX), Twitter (TWTR), Disney (DIS), among others, AWS accounted for 65% of Amazon's first-half profits, driven by operating profit of 48% which reached $6.4 billion in the first half of the year. The drive towards Amazon’s services and marketplace was further compounded by the shutdowns of various brick-and-mortar stores across the nation. Can the surge continue?
For the just-ended quarter the company expects to report AWS revenue of $13 billion, which suggests year-over-year growth of 29%. Analysts, however, are more bullish, calling for revenue to rise as high as 32%. And when factoring AWS growth opportunities, combined with potential for further cost savings, AMZN stock is poised to hit the $4,000 mark in 2021. As such, it would be a mistake to part with Amazon shares ahead of the Tuesday’s results, especially with the stock trading 20% below its consensus price target of $3,830.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio