Will Amazon's (AMZN) Q4 Earnings Benefit From Prime & AWS?

Zacks Equity Research

Amazon AMZN is scheduled to report fourth-quarter 2019 results on Jan 30.

The company surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with the average positive earnings surprise being 14.04%.

Q4 Estimates

We note that the Zacks Consensus Estimate for earnings has been stable at $3.98 per share over the past 30 days. This indicates a decline of 34.1% from the year-ago reported figure.

Further, Amazon expects net sales between $80 billion and $86.5 billion. The estimated figure implies 11-20% improvement on a year-over-year basis. Management projects an unfavorable impact of 80 basis points from foreign exchange rates.

Notably, the Zacks Consensus Estimate for net sales is pegged at $86 billion.

Amazon.com, Inc. Price and EPS Surprise

 

Amazon.com, Inc. Price and EPS Surprise

Prime, Holiday Sales & Retail Initiatives: Key Catalysts for Q4

Amazon Prime’s strengthening grocery and delivery services, expanding international footprint and original content portfolio, along with growing retail initiatives are expected to have aided its adoption rate in the fourth quarter. Further, Prime-based customer benefits are likely to have been a positive.

Moreover, solid Prime momentum in the recent holiday season is likely to reflect on the company’s fourth-quarter performance. Notably, there were more than 5 million new customers in one of the holiday season weeks that opted for Prime free trials or joined as paid members.

Further, the number of items delivered with Prime Free One-Day and Prime Free Same-Day Delivery quadrupled during this peak season.

Additionally, the view rate of Amazon Originals by Prime members during this holiday season was the highest ever.

All these factors contributed significantly to the company’s record-breaking holiday sales. This, in turn, is likely to have driven Amazon’s top-line growth in the quarter under review.

The company rolled out the AmazonFresh service, which enables Prime members to receive delivery of daily essential goods and grocery items within two hours, in Tampa. This move helped Amazon to further expand this particular service in the United States. Further, it is likely to have added to Prime subscriber base in Tampa in the to-be-reported quarter.

Furthermore, the company’s robust two-hour delivery service of natural and organic products from the Whole Foods Market across U.S. cities is expected to have gained traction across customers during the quarter under review.

In addition to the Prime program, its aggressive retail initiatives are anticipated to aid fourth-quarter results. Expanding physical presence continued to provide it a competitive edge against retailers like Walmart WMT, Target and Kroger in the fourth quarter.

We note that the e-commerce giant bolstered physical footprint by inaugurating Amazon 4-star store in Natick, MA during the fourth quarter.

Strengthening AWS Services

In the soon-to-be-reported quarter, Amazon rolled out AWS Data Exchange, which provides quick access to data offered by 80 qualified data providers. Further, it introduced six new Amazon SageMaker capabilities.

Additionally, it made AWS Outposts, which are fully managed and configurable compute and storage racks, generally available to customers. Furthermore, the company introduced new analytic capabilities in the fourth quarter. Also, it announced AWS Fargate for Amazon Elastic Kubernetes Service, thereby expanding its Kubernetes capabilities.

We believe all these moves are likely get reflected on Amazon’s fourth-quarter results. Moreover, its expanding services portfolio is likely to have added to Amazon’s customer base, which in turn is expected to have driven AWS’ revenues in the fourth quarter.

Expanding Smart Devices Portfolio

During fourth-quarter 2019, the company unveiled the latest version of its Fire HD 10 tablet, which offers access to more than 450,000 Audible titles, and 570,000 apps and games.

Further, it rolled out the Fire HD 10 Kids Edition, an advanced tablet built specifically for children. The tablet comes with an internal storage capacity of 32 GB, expandable up to 512 GB.

Moreover, the company launched the Kindle Kids Edition that comes with one-year subscription of Amazon FreeTime Unlimited, which lets kids access several chapter books and award-winning titles.

Additionally, the company strengthened footprint in the global smart speaker market by rolling out Echo Dot, Echo Show 5 and Amazon Echo in Brazil. Further, the company added Brazilian Portuguese language to Alexa and made the same available to users in Brazil.

All these smart devices and strengthening Alexa features helped it to deliver improved user experience, and are likely to reflect on fourth-quarter results.

Earnings Whispers

Our proven model predicts an earnings beat for Amazon this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of +10.23%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Amazon has a Zacks Rank #3.

Other Stocks That Warrant a Look

Here are a few other stocks that you may want to consider, as our model shows that these too have the right combination of elements to post a positive earnings surprise in the quarter to be reported.

Apple AAPL has an Earnings ESP of +4.08% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Facebook FB has an Earnings ESP of +2.62% and a Zacks Rank of 3.

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