Amazon seen having upside potential following rescheduled Prime Day(s)
Amazon (AMZN) is scheduled to report results of its third fiscal quarter after the market close on Thursday, October 29, with a conference call scheduled for 5:30 pm ET. What to watch for:
1. PRIME DAY(S): On October 15, Amazon noted that after holding Prime Day in India in August, the company wrapped the two-day event across 19 additional countries, "delivering big sales for small businesses and big savings for Prime members in the U.S., U.K., U.A.E., Turkey, Spain, Singapore, Netherlands, Mexico, Luxembourg, Japan, Italy, Germany, France, China, Canada, Brazil, Belgium, Austria, and Australia." The company added in it press release: "This Prime Day delivered the two biggest days ever for third-party sellers, nearly all of which are small and medium-sized businesses. Sellers saw record-breaking sales, surpassing $3.5 billion in total across 19 countries."
On October 19, Piper Sandler analyst Thomas Champion estimated that the two-day Prime event reached $10.6B in sales, up 49% year-over-year, with units sold hitting 260M, from 177M last year. His analysis suggests a "heavy" first-party mix, driven by Amazon devices and electronics. Amazon's Q4 could have received a 7% boost to total gross merchandise in a period already experiencing elevated demand, Champion told investors. Champion has an Overweight rating on Amazon shares.
The next day, Citi analyst Jason Bazinet noted that CNN said Amazon confirmed that Prime Day 2020 was "the best on record," but did not say it was the largest shopping event ever. The change in language could be due to regulatory concerns or a signal that Prime Day 2020 was outpaced by 2019 Black Friday/Cyber Monday or a 2020 COVID-19 surge, said the analyst. He believes the latter is more likely. Nonetheless, Bazinet continues to like Amazon ahead of its Q3 results. The company should benefit from "several growth engines," including e-commerce, cloud and digital ads, Bazinet contends. He keeps a Buy rating on Amazon shares with a $3,550 price target.
JPMorgan analyst Doug Anmuth continues to like Amazon into its Q3 earnings report and keeps an Overweight rating on the shares with a $4,050 price target. Even with the stock up 73% year-to-date, Amazon remains the analyst's top idea, he recently said. E-commerce growth continued at a near-record pace in Q3, and Amazon is well positioned into what is likely to be a record online holiday season, Anmuth told investors. The analyst believes there is upside potential to consensus Q3 and Q4 estimates, he added.
2. CLOUD: Last quarter, Amazon reported Amazon Web Services net sales of $10.81B, which was up from $8.38B in the same quarter of the prior year. AWS operating income grew to $3.36B from $2.12B in the prior year period.
3. GUIDANCE: Along with its last report, Amazon guided to Q3 sales of $87B-$93B, which compares to consensus at that time of $86.29B and the current consensus forecast of $92.7B.
The company said at that time that it saw Q3 operating income of $2B-$5B, compared with $3.2B last year. The guidance assumes more than $2B of costs related to COVID-19, said Amazon, which added that its forward-looking statements reflected expectations as of July 30 "and are subject to substantial uncertainty."