Amazon’s share price: what to expect from its Q4 results

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Amazon’s share price has gained close to 25% since the start of the year. Can its upcoming Q4 earnings support further recovery for its share price?

Source: Bloomberg

 

Shares Amazon Web Services Retail Amazon Revenue Price

 Yeap Jun Rong | Market Strategist, Singapore | Publication date: Monday 30 January 2023 

When does Amazon Inc report earnings?

Amazon Inc is set to release its quarter four (Q4) financial results on 2 February 2023, after market closes.

Amazon’s earnings – what to expect

Current market expectations are for Amazon’s upcoming Q4 revenue to come in at $145.4 billion, up 5.8% year-on-year (YoY). This comes after Amazon downgraded its fourth-quarter revenue back in October last year to be between $140 billion and $148 billion. Previous miss in revenue guidance led Amazon’s share price to plunge 13% in a single day, leaving upcoming guidance as one of the crucial factors to watch.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to come in at $18.2 billion, up 7.4% from a year ago.

Amazon Web Services (AWS) on watch as Amazon’s growth catalyst

Amazon Web Services (AWS) remains a key engine for the company’s growth, considering that it is Amazon’s highest-growth segment (27.5% year-on-year growth in quarter three) and has been taking up an increasing share of its revenue over the years. While there are some earlier hopes that cloud spending could still hold up as companies prioritise digital transformation, recent guidance from Microsoft has put AWS in a tough spot. At its latest earnings release, Microsoft has guided that Azure cloud-computing sales in the current period will slow by four or five points — down from the mid-30s percentage-wise at the end of the fiscal second quarter. This seemingly coincides with the series of tech layoffs announced over the past few months. Refinitiv estimates suggest that moderating growth in AWS may continue through the first half of 2023, which could leave room for disappointment in that the worst has not been seen. While Amazon’s share price has managed to pare initial losses due to the improved risk environment, the upcoming results could deliver another reckoning, if Amazon downgraded its cloud revenue forecast as well in the likes of Microsoft.

Aftermath of cost-cutting measures on close watch in earnings call

Earlier this month, Amazon has announced that it will be cutting 18,000 employees as it turns to cost-cutting measures to cope with the ‘uncertain economic conditions’. This is the largest layoff in the company’s history. Amazon’s operating margin has been on a declining trend since 2021, coming in at just 2% as of quarter three (Q3) 2022, down from 4.4% in Q3 2021. Higher costs remain a challenge that Amazon must deal with, as total operating expenses as of Q3 2022 continue to rise 17.6% from a year ago. Much will depend on how the management is able to convince market participants that recent cost-cutting measures will provide a turnaround for margins, but some challenges lie ahead with oil prices gaining some upside to kick off 2023 while wage pressures remain.

Retail spending still a mixed bag, outlook will be key

Amazon’s core retail business is heavily dependent on US consumers’ spending, and upcoming expectations suggest that it could still be a mixed bag. Based on its geographical breakdown, its ‘North America’ segment is expected to grow 8.9% from a year ago, but its ‘International’ business is expected to contract by 6.5%. Online store sales (giant bulk of its retail business) is projected to come in flat, with a slight contraction of 1% from the previous year. Any guidance on the consumer spending outlook could hold greater weight in driving market sentiments. While the January reading for the US University of Michigan consumer sentiment index has shown a recovery to its 8-month high (64.9), the improving spending outlook was not echoed by the world's two largest payment card network processors, MasterCard and Visa. From their latest result release, both companies saw purchase volumes on their cards climb less than expected and expect card spending to slow as inflation persists. The weakening trend for consumer spending was also presented with retail sales down 1.1% in December, the biggest drop since December 2021. Much will depend on how Amazon addresses this risk to its core business at its upcoming earnings call.

Amazon’s shares – technical analysis

There have been some bullish moves in Amazon’s share price lately, having lifted off the lower trendline of a falling wedge pattern. From its weekly chart, a bullish divergence was presented on the moving average convergence/divergence (MACD), along with a bullish crossover indicating upward momentum. However, a key resistance at the $102.00 level may have to be overcome, where a previous support-turned-resistance coincides with its 100-day moving average (MA). Overcoming this level may pave the way towards the $120.00 level next. A greater test of resistance may stand at a key longer-term downward trendline, which has held prices down on two occasions since 2021.

 

Source: IG charts