Amazon Down On Missing Q2 EPS Estimates

Amazon Down On Missing Q2 EPS Estimates
July 29, 2019 Inc. (NASDAQ: AMZN) reported fiscal 2019 second-quarter earnings that missed analysts’ estimates. However, a robust performance of the cloud business boosted revenues by 20% y-o-y to surpass the Street view. The below-par performance has come at a time when the e-commerce giant, along with Facebook, Apple, and Google, are under government scrutiny on concerns over market dominance. AMZN ended Friday’s trading at $1,943.05, down $30.77 or 1.56%, on the Nasdaq.

Seattle, Washington-based Amazon reported second-quarter sales of $63.40 billion, up 20% from $52.89 billion in the similar period last year. Analysts had anticipated revenue of $62.48 billion for the quarter. In the previous quarter, revenues grew 16.8% on a y-o-y basis, reflecting the slowest pace in four years.

For the second quarter, Amazon reported a profit of $2.63 billion, or $5.22 per share, compared with $2.53 billion, or $5.07 per share, in the year-ago period. The earnings, however, missed analysts’ estimates of $5.57 per share for the quarter.

Segment-wise, seller services revenue grew 23% y-o-y to $12 billion in Q2 2019. Advertising and other revenue soared 37% to $3 billion.

Region-wise, North American revenue was $38.65 billion, an increase of 20% from $32.17 billion in the prior-year period. International sales grew 12% to $16.37 billion. Notably, Amazon Web Services (cloud business) posted a 37% y-o-y increase in revenues to $8.38 billion, but missed analysts forecast of $8.48 billion. Amazon started reporting AWS growth five years before, and this was the first time the growth fell before 40%.

Regarding one-day delivery initiative, Jeff Bezos, Amazon founder and CEO, said: “Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth.”

Analysts opined that the result was the inevitable outcome of the intensive concentration of Amazon on single-day delivery as a strategic advantage against fierce rivals.

Jeff Bezos’ push for single-day delivery continues to cost the company a huge amount of money. Walmart presently offers delivery in two days without any subscription fees.  Last week, Amazon revealed that roughly 175 million products were bought by its Prime members during the online sales festival. Bezos, in a recent statement, confirmed that the company is going full throttle to achieve the objective of one-day delivery. However, Amazon’s employees are not thrilled with the idea as they find it bad for their paychecks and health. In fact, employees at Minnesota fulfillment center held demonstrations at the beginning of Prime Day to celebrate single-day service.

Amazon had promised to invest $800 million in the recent quarter to migrate from two-day delivery to one-day delivery for its Prime members who don’t mind shelling out $119 a year. The facility is now offered for over ten million products. The company is also making considerable investments in autonomous driving vehicles and electric vehicles to achieve its aim of single-day delivery.

Amazon is trying hard to keep itself ahead of increasing competition from Walmart and Target, both of which are accelerating shipments. Walmart is currently offering next day delivery for customers in Phoenix, Las Vegas, Arizona, and southern California, and intends to provide the service to 75% of the US population by the end of 2019.

Moving forward, the company anticipates Q3 sales in the range of $66 billion to $70 billion. Analysts have issued a revenue forecast of $67.27 billion for Q3 2019. The company also anticipates operating profit of between $2.10 billion and $3.10 billion, below analysts’ estimates of $4.40 billion as per FactSet.

Charlie O’Shea, an analyst at Amazon, said that “results were negatively impacted by margin compression in North America due to the investments in next day Prime delivery, which we continued to believe is an example of short-term pain for long-term gain, and is a necessary strategy to compete with brick-and-mortar’s speed advantage to the customer.”  

The second-quarter earnings miss and the weak third-quarter outlook are expected to keep the stock bearish in the short-term.

Technically, the stock remains range-bound between 1700 and 2000. The MACD indicator is making lower highs. As a result, we can expect the price correction to continue in the short-term.

amzn - technical analysis - 29th July 2019

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.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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