The Q3 Earnings Season – Amazon

Amazon’s earnings report is due to come out today after the market close, and the world’s third largest company by market capitalization (drifting form the second place which now belongs to Apple which recording a value of US $1.012T in the third quarter (Q3) of 2019), is expected to experience a near quarter decline of its Earnings Per Share (EPS), compared to last year. Amazon’s market Capitalization as of October 23 is $871.67 B.

The Street consensus is $68.8 billion in revenue, with profits of $4.60 a share for the fiscal Quarter ending September 2019.

Amazon’s revenue stream is impressive: more than half of US homes have a Prime membership, while cloud and e-commerce businesses are growing. However for this quarter, the company facing few risks that could assist in taking its profits lower. Hence despite the fact that Amazon posted a $63,404 million revenue in the second quarter of the year, its share price declined as a result of worse than expected revenue back in July.

Unfortunately for the company, the biggest part of Amazon’s income is derived from its cloud segment. Hence despite that Amazon Web Services (AWS), which provides cloud-computing services, posted a significant increase in both sales and operating income year after year, we have seen that it faces a slowdown of its growth. The  AWS missed estimates last quarter, so it will be a key metrics for investors on today’s report.

The introduction of Amazon’s One-day delivery in US and globally as well, which revolutionize the retail shopping experience, has proven costly for the company, which is currently struggling with the near term costs. In the long term however, the long term gains are expected to beat short-term’s costs, as the number of Prime members have been spiked higher due to this. Eventhough, Amazon’s profitability soften recently, the one-day Prime shipping along with its continuous strengthening in the cloud business, are keeping the company in a very competitive and promising position.

While Amazon appears to have a large potential for growth in the coming years, the question which begs an answer is whether, and how much incremental margin pressure will Amazon suffer from its push for same-day delivery. Also whether these risks have already priced in on Amazon’s share price.

Amazon share price appears to have stalled below the $1800s the past week, ahead of the Q3 earnings report. It is currently traded 13.5% lower than record highs.