On The Fly: What to watch in Amazon earnings report
Amazon (AMZN) is scheduled to report results of its third fiscal quarter after the market close on Thursday, October 27, with a conference call scheduled for 5:30 pm ET. What to watch for: 1. INVESTMENTS: Following Amazon's last quarterly report on July 28, Needham analyst Kerry Rice said that heavy investment in content and infrastructure in the second half of 2016 may moderate the company's consolidated segment operating income, or CSOI, growth. Similarly, BMO Capital analyst Daniel Salmon said at that time that Amazon's Q3 operating profit guidance came in below expectations, largely because of investments that the company is making in capacity for the holiday season and in content for its digital offering. On October 12, Amazon unveiled on-demand music service Amazon Music Unlimited." For Prime members, Music Unlimited is offered for $7.99 a month, while Amazon is offering an exclusive subscription plan for only $3.99 per month for owners of its Echo, Echo Dot or Amazon Tap devices. The next day, Amazon reported that it plans to create more than 120,000 seasonal positions across its U.S. network of fulfillment centers, sorting centers and customer service sites this holiday season. 2. CLOUD: Amazon's cloud unit, Amazon Web Services, reported AWS net sales of $2.89B and AWS segment operating income of $718M in the second quarter. While Amazon remains the leader in the cloud, other tech giant's have been trying hard to close the gap. A week ago, Microsoft (MSFT) reported that revenue in its Intelligent Cloud segment grew 8%, with Azure revenue once again more than doubling compared to the same quarter of last year. 3. GUIDANCE: Along with its last report, Amazon guided Q3 revenue to grow 22%-32% compared to the same quarter of last year to a range of $31.0B-$33.5B. Analysts, on average, see the company reporting revenue above the mid-point of that range, or $32.7B. Amazon gave operating income guidance in a wide range of $50M-$650M, compared with $406M in the third quarter of 2015. 4. MARCH TOWARD $1,000?: During the quarter, a number of Wall Street analysts hiked their price targets on Amazon to $1,000 per share or higher. On September 16, RBC Capital analyst Mark Mahaney said his firm's survey showed that 89% of U.S. consumers identified Amazon as the e-commerce site they use most, with Amazon increasing its lead over the number 2 response, eBay (EBAY). The survey also showed "rising awareness and ownership" of Amazon's Alexa device, which could become a new pillar of significant growth, according to the analyst. Later in the month, JPMorgan's Doug Anmuth raised his price target for Amazon for December 2017 to $1,000 on a roll forward to his 2017 estimates. In October, Cantor Fitzgerald analyst Youssef Squali raised his target for Amazon.com to $1,000 from $835, citing continued strength in core retail and sustained momentum in Web Services, and Credit Suisse analyst Stephen Ju raised Amazon's target to $1,050 from $920 based on a rollout to end of 2017 estimates. Most recently, Goldman analyst Heath Terry predicted Amazon's third quarter revenue should beat expectations, driven by faster growth of its cloud infrastructure business. The firm raised its target on the shares to $1,050 from $920 and kept a Conviction List-Buy rating on the stock.