Amazon Q3 earnings: Will inflation pressures damped consumer demand ahead of key Q4 period?

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Amazon shares come into focus as inflation puts pressure on spending habits. Will the latest Q3 earnings allay or heighten those fears?

Source: Bloomberg

 Joshua Mahony | Senior Market Analyst, London | Publication date: Friday 21 October 2022 

When will Amazon report their latest earnings?

Amazon will post its financial results for the third quarter of 2022 after market close on Thursday, October 27, 2022.

Amazon earnings –What should traders look out for?

Tech stocks have suffered a dramatic decline over the course of this year, with the prospect of higher interest rates from the Federal Reserve hitting growth stocks with elevated EPS valuations. Amazon is no different, with the stock losing down 31% since the turn of the year. With the Fed’s policy of higher interest rates expected to drive economic growth lower in a bid to dampen inflation, consumer spending will undoubtedly come under pressure as a result. A wider decline in real earnings will result in a situation where consumers have to prioritise spending, with higher core expenses such as energy and rent bringing a likely decline in non-essential purchases. The degree to which this hurts Amazon.com remains to be seen, with the forthcoming earnings report bringing greater clarity over just how much this crisis is hurting demand. Meanwhile, traders should keep a close eye out for details around how the firm expects the year-end holiday sales period to take shape. The latest comments from Amazon founder Jeff Bezos that the economy was sending a signal to "batten down the hatches" does highlight the feeling that the industry could be set for a difficult period ahead.

Fortunately for investors, the Amazon Web Services segment of the business does provide some cushioning given its relatively recession-proof nature. That cloud computing division is the fastest growing part of the business, and thus it makes sense to see just how resilient and robust this part of the business remains through times of economic hardship.

Amazon earnings – what to expect

Revenue – $127.5 billion vs $110.8 billion (Q3 2021), and $121.2 billion (Q2 2022).
Earnings per share (EPS) – $0.22 vs $0.31 (Q3 2021) and $0.18 (Q2 2022).

Amazon earnings – valuation and broker ratings

Analysts are overwhelmingly positive for Amazon shares, with just one ‘sell’ recommendation ahead of the third quarter earnings. Out of 53 analysts, there are 18 ‘strong buys’, 31 ‘buys’, 3 ‘holds’, and 1 ‘sell’ recommendation.

Source: Eikon

Amazon shares – technical analysis

The weekly Amazon chart highlights the decline seen over the course of this year thus far, with price falling back into a historical resistance-turned-support level at $101.78. With price reversing lower of late, the big question is whether we will see price reverse higher or break through support this time around.

Source: ProRealTime

The daily chart brings a better view on how this potential reversal or breakdown is playing out. The recovery seen of late brings price back towards the key swing-high of $123. A break up through that key $123 level would signal a potential impending period of upside for the stock. However, until that break occurs, the recent respect of 76.4% Fibonacci resistance level does highlight the potential for a turn lower to challenge the critical $101.78 support level once again.

Source: ProRealTime