Amazon – What to Look For From AMZN
- Analysts estimate EPS of $7.26 vs. $6.47 for Q4 FY 2019.
- AWS cloud revenue growth is expected to be strong, but at a slower rate than Q4 FY 2019.
- Companywide revenue growth is expected to accelerate amid the global pandemic.
Amazon.com Inc. (AMZN) has seen skyrocketing profits and sales in its e-commerce and cloud service businesses over the past year during the escalating COVID-19 pandemic. A sharp increase in online orders has boosted Amazon‘s giant e-commerce business, and the surge in corporate employees and consumers working at home has boosted demand for its cloud services. Amazon is posting rapid growth even as it fights major antitrust charges from European Union regulators.
Investors will look closely to see how these forces are affecting Amazon‘s financials when the company reports earnings after market close on February 2, 2021 for Q4 FY 2020. Analysts predict that revenue will grow year-over-year (YOY) at a significantly faster pace than Q4 FY 2019. Earnings per share (EPS) is also expected to accelerate from a year earlier, but the pace will be slower than the most recent two quarters.
Investors will also watch another key metric, Amazon Web Services (AWS) revenue. AWS is Amazon‘s cloud-computing service, which has grown quickly in recent years and has benefited from growth of the work-from-home economy amid the pandemic. Analysts expect AWS revenue to post robust growth YOY, although at a slightly slower pace than Q4 FY 2019.
Amazon‘s stock has thrived as the COVID-19 pandemic has spread across the U.S. and global economy. Its stock did not dip as much as the broader market during the pandemic-induced crash last February and March. It also recovered more quickly, although Amazon shares have traded sideways for the past five months. Nonetheless, Amazon shares have far outpaced the broader market in the past year, providing a total return of 76.2%, about five times the S&P 500’s total return of 15.7% as of January 27, 2021.
The company’s EPS performance has been more mixed. Amazon has posted falling EPS or lackluster EPS growth during four of the past seven quarters since Q1 FY 2019. It posted explosive growth during three of those quarters, including a 192% increase in Q3 FY 2020. Even though Amazon‘s earnings beat expectations for Q3, the shares fell the following day, then advanced for several days and proceeded to trade sideways.
For Q4 FY 2020, the consensus estimate of a 12.1% improvement is modest compared to the standout quarters in recent years, but still represents a faster pace of growth than 7.1% for Q4 FY 2019.
By contrast, Amazon‘s quarterly revenue has grown consistently at a strong pace in recent years, and the first three quarters of FY 2020 are no exception. Quarterly gains of 30% or more YOY were common throughout FY 2017 and FY 2018, although the pace of growth slowed markedly in FY 2019. Analysts predict that Q4 FY 2020 revenue growth will be 36.9% YOY, approaching double the 20.8% rate of growth for Q4 FY 2019.
|Amazon Key Metrics|
|Q4 FY 2020 (Estimate)||Q4 FY 2019||Q4 FY 2018|
|Earnings Per Share ($)||7.26||6.47||6.04|
|Amazon Web Services Revenue ($B)||12.8||10.0||7.4|
Source: Visible Alpha
Investors also will focus on revenue generated by AWS, Amazon‘s cloud-computing platform. The AWS segment provides global compute, storage, database, and other services to start-ups, enterprises, governments and their agencies, and academic institutions. AWS represented only 12.5% of Amazon‘s total revenue in FY 2019, the latest full fiscal year. Still, because it has significantly higher profit margins than the company’s e-commerce business, AWS accounted for nearly two thirds of the company’s consolidated operating income for that period. Amazon faces stiff competition from Microsoft Corp.’s ((MSFT)) Azure and Alphabet Inc.’s (GOOGL) Google Cloud Platform, although the shift toward a work-from-home economy has continued to stimulate demand for cloud-services products.
While Amazon AWS revenue growth has been healthy, that growth has slowed in recent years. The first three quarters of FY 2020 represent the smallest YOY increases in more than two years. Analysts expect revenue to rise 28.1% YOY in Q4 FY 2020. Amazon‘s total AWS sales of $12.8 billion for Q4 would be more than double what it was in Q2 FY 2018. But it also would be the smallest quarterly AWS revenue increase in at least 14 quarters.