“Black Friday” has become synonymous with a widely anticipated and successful day of sales for Amazon. However, the name is apt for the e-commerce giant’s most recent earnings call.
The Q2 FY 2022 earning report for Amazon is a pot-pourri of the good, bad, and ugly of stock investing. Firstly, earnings per share (EPS) skirted well below analyst predictions to settle at -$7.56. However, it’s taken four years for the tech behemoth to post a net loss.
Net losses comprise of a pre-tax valuation loss of $7.6 billion included in non-operating expense from the company’s foray into the electric vehicle market via Rivian automobile, Inc.
However, Amazon’s Q1 2022 revenue surpassed consensus estimates, which makes for interesting review.
AMZN AWS Revenue
Amazon Web Services (AWS) has proved to be a rewarding investment for Jeff Bezos. A proven cash cow, Q1 2022 revenues from AWS topped $18.3 billion as the demand for cloud services bloomed. This is a 37 percent year-on-year increase that well exceeded analyst predictions.
The negative speculation seems most likely to be linked with the existence of other big-name cloud services such as Google Cloud, Oracle Cloud, and Microsoft Azure. Amazon, on the other hand, attributed AWS growth to new commitments from cross-industry customers with footprints in aerospace, healthcare, sports, technology, and telecoms.
Interestingly, Amazon AWS is one of the company’s segments to report net operating income for Q1 2022.
The margins from AWS now surpasses that for its e-commerce. In the previous corresponding period, Amazon’s global retail sales and subscription-based businesses raked in 87.5 percent of the company’s total revenue, whereas AWS accounted for a paltry 12.5 percent.
This year, however, AWS generated 63.3 percent of total operating income for the year, making it Amazon’s primary profit generator.
What Does All this Mean?
Stocks can fall as fast they rise, sometimes faster too. As some major stock benchmarks continue to correct, others have entered a bear market.
Peaking volatility is forcing investors to look towards brand-name companies. Amazon is a prime stock and remains one of top investments on Robinhood and Wall Street. That said, we’d now turn our attention to what was good and what wasn’t so stellar in Q1 2021 for Amazon.
What We Like
Amazon is still a prime stock, and its 1P business is a bright spot. As the company deals with inflation, Q2 will likely feature stronger results as folks prepare for Prime Day in the third quarter.
Besides, the subsequent holiday quarter readily prompts a bullish period ahead.
What We Don’t Like
Missing the consensus estimate by $4 billion this quarter requires some explaining. The softer-than-Q22022 guidance suggests a structural slowdown in e-commerce growth as the pandemic eases away and people patronize physical stores more.
There’s also softening in 3P data, showing third-party struggles with channelling rising costs to consumers in an already inflationary environment.
Amazon Stock: Looking Ahead
After the earnings release, AMZN fell over 9 percent in after-hours trading. This may not be something too surprising given the stock’s consistent slide relative to the broader market in the past year. It’s provided one-year trailing returns of -16.4 percent compared with 2.5 percent for the S&P 500.
Net sales will be between $116.0 billion and $121.0 billion for Q2 2022, according to Amazon. It represents growth between 3 percent and 7 percent. Predictions for operating income are between -$1.0 billion and $3.0 billion, relative to $7.7 billion in Q2 FY 2021.
Amazon is a strong company, with plenty going for it. It remains competitively priced relative to the competition. Amazon Prime and Amazon AWS are critical growth drivers for Amazon, and consumers will spend $445 billion Prime alone. As the content catalogue on Prime Video increases, the program is increasingly part of the consolidated business due to its improved delivery speed.
So, should you buy Amazon stock despite this brutal earnings report? It’s a resounding “Yes!”
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only