Amazon (AMZN) is scheduled to report results of its second fiscal quarter after the market close on Thursday, July 29, with a conference call scheduled for 5:30 pm ET. What to watch for:
1. PRIME DAY FOR AMAZON, PRIMETIME FOR JASSY: Two quarters ago, Amazon announced that Jeff Bezos would move into the role of Executive Chair and Andy Jassy would become CEO and that leadership transition has now taken place.
For the second quarter, Amazon has said net sales are expected to be between $110.0B and $116.0B, or to grow between 24% and 30% compared with the same quarter of last year. Operating income in Q2 is expected to be between $4.5B and $8.0B, compared with $5.8B in the same quarter of last year. The guidance assumed approximately $1.5B of costs related to COVID-19 and that Prime Day would occur in second quarter, Amazon noted with its last earnings report.
Current consensus EPS and revenue forecasts for Amazon's June quarter stand at $12.22 and $115.07B, respectively, according to data provided by Refinitiv.
On June 23, Amazon announced Prime Day 2021 "was the biggest two-day period ever for Amazon's third party sellers... growing even more than Amazon's retail business." The company added: "Prime members in 20 countries shopped more this Prime Day than any previous Prime Day and scored discounts across home, fashion, beauty, and electronics. Members purchased more than 250M items worldwide and saved more than any Prime Day before. Customers spent over $1.9B on more than 70M small business products during the promotional period, more than a 100% year-over-year increase on sales compared to the Prime Day October 2020 promotion."
In a note to investors afterward, Morgan Stanley analyst Brian Nowak estimated that this year's Prime Day event generated about $6.8B of gross merchandise volume, up 9% year-over-year, but estimated Prime Day revenue only grew about 7% year-over-year to $3.8B given that Amazon noted that third party sales grew faster than Amazon's own retail business. Meanwhile, Piper Sandler analyst Thomas Champion estimated the seventh annual event reached $10.9B in cumulative sales, up 13% year-over-year. Champion estimated units sold hit 259M, up 8% year-over-year, and his analysis suggested a "heavy" first-party mix driven by Amazon devices and electronics, with a slightly higher selling price than 2020.
More recently, Wedbush analyst Michael Pachter said that he expects Q2 results at or above the high-end of guidance driven by Prime Day, e-commerce share gains, and a recovering economy. Revenue growth should decelerate in 2021, but remain above 2019 levels, Pachter added. Further, the analyst believes Amazon's profitability should expand as it grows operating expenses more slowly than revenues. Amazon Web Services, Fulfillment by Amazon, and ads should drive steady margin expansion, with Prime memberships driving overall retail revenue growth, he contended. Pachter has an Outperform rating and a $4,300 price target on the shares.
2. CLOUD: Last quarter, Amazon reported Amazon Web Services net sales of $13.5B, which was up from $10.2B in the same quarter of the prior year. AWS operating income grew to $4.16B from $3.08B in the prior year period. Earlier this week, Alphabet (GOOG, GOOGL) reported Q2 Google Cloud revenue of $4.63B, versus $3.0B a year ago.
3. ADVERTISING: Following Alphabet's quarterly report, Wedbush analyst Michael Pachter raised the firm's price target on shares of Google's parent to $3,424 from $3,127 and maintained an Outperform rating after the company reported "another stellar quarter" with strong beats in revenue and margins. Pachter notes that Google is reinventing itself in online search, and is increasingly becoming a critical component of online commerce, pushing back on views that it has ceded ground to Amazon in e-commerce and retail advertising.
4. MGM DEAL: On May 26, Amazon and MGM announced that they have entered into a definitive merger agreement under which Amazon will acquire MGM for a purchase price of $8.45B. Completion of the transaction is subject to regulatory approvals and other customary closing conditions.
In terms of regulatory approvals, The Wall Street Journal's Brent Kendall reported on June 22, citing people familiar with the matter that the Federal Trade Commission will be the government agency to examine Amazon's proposed takeover of the Hollywood studio. During recent interagency talks with the Justice Department, the FTC secured the right to review the transaction, the author said, noting that the FTC pushed for jurisdiction over the case since it already has an open investigation into Amazon's business practices.
Piper Sandler analyst Thomas Champion has said he thinks the MGM deal "looks sensible" as it strengthens the company's position competitively in video and may boost Prime engagement and acquisition. The price paid "seems fair and, ultimately, is inconsequential" given Amazon's cash position, said Champion, who also thinks the deal "may be a bigger issue" for Netflix (NFLX), Disney (DIS) and other competitors in the streaming wars.
Also commenting on Amazon's plans to acquire MGM, Truist analyst Matthew Thornton argued that for Lionsgate (LGF.A) "the read through is mixed" as the combination should create a "more formidable" competitor to Starz but could also be another catalyst for further consolidation. The analyst has long-viewed Lionsgate as a potential target. Thornton also sees the MGM acquisition as "a very modest negative" for Netflix and Disney, saying the combination should make Prime Video an incrementally more formidable standalone comp to both. Regarding Roku (ROKU), Thornton thinks the read through is mixed. Long-term, he continues to view consolidation as a headwind for Roku all else constant. However, near-term he could see Prime Video being aggressive in marketing a combined offering.
Amazon.com
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Alphabet
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Alphabet
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Netflix
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Roku
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