Amazon Earnings Preview: AMZN stock sell-off removes it from trillion dollar club

• AMZN stock has shed over 2% at the open.
• Amazon delivers earnings after the close on Thursday.
• Analysts still expect 30% Amazon Web Services growth.

UPDATE: AMZN crashed more than 20% in the afterhours trade on Thursday as the market reacted strongly to guidance for the big holiday season that was underwhelming. Amazon stock's sell-off was then bought up enough to end the post-market trading period down 12.7% at $96.84. Still this meant that the ecommerce behemoth was kicked out of the vaunted trillion dollar club. With 10.19 billion shares outstanding, Amazon's afterhours price puts its at $987 billion in market capitalization. Management displayed Q4 revenue guidance between $140 and $148 billion, which was well below the $155 billion expected by Wall Street.. Cloud revenue growth from AWS also missed the 30% intended mark by a few percentage points. EPS of $0.28 beat consensus by 8 cents, but revenue of $127.1 billion missed expectations by about $370 million.

Amazon (AMZN) shed 2.6% at Thursday's open to trade at $112.65 ahead of third-quarter earnings out after the close. Two sets of positive economic data seem to be having little effect. Annualized US GDP data for Q3 came in ahead of projections at 2.6% YoY. Analysts had expected 2.4%. Likewise, the preliminary Personal Consumption Expenditures Prices for Q3 came in well below expectations. The QoQ data showed prices growing by 4.2% rather than the expectation of 7.9%. Meta Platforms (META) selling off 22% at the open after delivering worrying earnings late Wednesday has the market in a particularly pessimistic mood, however.

Amazon earnings preview

First things first, Wall Street is expecting Amazon to deliver $0.21 a share in GAAP EPS and sales of $127.48 billion. For comparison, the e-commerce megalith reported a loss of $-0.20 on sales of $121.23 billion in the recent second quarter. The company surprised the market last time around when EPS missed by a staggering 32 cents. In the year-ago quarter, Amazon released EPS of $0.31 on revenue of $110.81 billion. Amazon has seen revenue growth decelerate for five straight quarters.

However, the focus on Thursday evening will fall firmly on Amazon Web Services (AWS), the company's cloud infrastructure segment. Based on the notes of various analysts, it seems that AWS must offer up at least 30% YoY growth in the cloud segment in order to appease the market. The share price may be a bit skittish in the lead-up to earnings due to the main competitor Microsoft (MSFT). Reporting just a day earlier, the latter's Azure cloud offering grew by 35% YoY in the most recent quarter compared to 40% YoY in the prior quarter (calendar Q2). Shareholders worry this slowdown in cloud computing may extend to AWS's larger business.

On the e-commerce front, the market will want further details on the company's recent Prime Day event. The insights here will lead analysts to adjust their outlook on the Q4 holiday period when sales typically jump more than 30%. So far most analysts seem to think that management's guidance will be somewhat conservative as the US economy appears headed into a recession that would surely cut into the holiday shopping season.

EPS revisions over the past quarter have seen 24 out of 31 analysts lower their forecasts for the third quarter. JPMorgan, however, has pointed out that AMZN stock has dropped much more than the S&P 500 over the past quarter and makes Amazon a more attractive buy at this price level.

Amazon stock forecast

Amazon stock definitely looks like it might droop a bit today and find solace again in the $101 to $109.50 range. This demand zone has resurrected AMZN shares from May through October on a dozen occasions. $121, $136 and $145 are the resistance points on the upside that traders should be aware of on the occasion of a beat and raise scenario. In the event of a major miss, Amazon has extremely long-term support at $86 and $81, but we have a hard time imagining that scenario. The likely event is a mixed quarter that sends AMZN stock price back into the $101 to $109.50 zone where institutions will once again nibble on the bait.

AMZN daily chart