Traditionally, the third-quarter is a large investment period for Amazon. Further, the company usually prepares itself to meet the strong demand in the holiday season. Thus, investors do not anticipate huge profits in the third-quarter period. However, the theory was debunked when Amazon.com, Inc. (NASDAQ: AMZN), the largest online e-commerce company reported a massive earnings beat in the third quarter of 2017. The company also issued positive guidance for the fourth quarter. Thus, on the basis of the quarterly results discussed below, we anticipate the stock to remain bullish in the week ahead. The stock of Amazon closed at $1120 on Monday.
The Seattle-based company reported 3Q17 net sales of $43.744 billion, compared with net sales of $32.714 billion in 3Q16. During the quarter ended September 2017, net income grew to $256 million, or $0.52 per share, compared with a net income of $252 million, or $0.52 per share, in the similar period last year. Analysts had expected Amazon to report earnings of $0.03 per share on revenue of $42.14 billion.
Segment-wise, during the third quarter, net product sales increased approximately $6.4 billion y-o-y to $28.768 billion. Net service sales grew to $14.976 billion in Q3 2017, from $10.375 billion in the same period last year. Whole Foods Market, which was acquired by Amazon in August, contributed $1.30 billion in the third quarter.
North America revenues increased 34.8% y-o-y to $25.446 billion, while International sales grew 29.27% to $13.714 billion. Notably, Amazon Work Station (AWS), the cloud business of the company, reported revenue of $4.584 billion, up 41.8% from last year.
The company also issued upbeat guidance for the fourth quarter. Net sales are expected in the range of $56 billion to $60.50 billion. That reflects growth of between 28% and 38% compared with the fourth quarter of 2016. The guidance includes a 10% positive growth impact from Whole Foods Market. Further, the fourth-quarter revenue outlook also includes a $1.20 billion or 2.70% favorable impact from currency exchange rates. Thus, strong growth in revenue, solid performance of cloud business, and an upbeat fourth-quarter outlook is expected to keep Amazon bullish.
The stock continues to consolidate at 1090 levels, as shown in the chart below. Further, the stochastic oscillator is in the bullish region. The non-lag moving average, which has turned blue, is suggesting the possibility of a continuation of the uptrend. Thus, it will be better to hold a long position in the stock.
We may invest in a call option to gain from the probable uptrend in the stock. A strike price of about $1120 and an option expiry date around November 15 is preferred for the trade.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
