Is Amazon Stock A Buy Or Sell Ahead Of Q1 Earnings? Here's Why We're Bearish - Seeking Alpha

Quick Read

Within the core retail business, everything from higher fuel costs with logistics to the tight labor market forcing rising wages at fulfillment has hit the operating income.
Source: Company IR The silver lining here has been the strength in the Amazon Web Services (AWS) segment which saw sales climb 40% y/y in the last quarter with a 48% increase in operating income.
While the company does not offer EPS targets, the guidance issued during the Q4 earnings release was for operating income between $3.
79 in the period last year, is consistent with the trend in operating income and margins over the last few quarters.
AWS has been the proverbial "Ace up the sleeve", leading growth supporting firm-wide operating income.

Is Amazon Stock A Buy Or Sell Ahead Of Q1 Earnings? Here's Why We're Bearish - Seeking Alpha

ImageKit/iStock Editorial via Getty Images Amazon.com, Inc. (NASDAQ:AMZN) is coming up on an important earnings report this week which will set the tone for the company's outlook with implications for the broader market. In many ways, the trends facing the e-commerce and cloud computing juggernaut are a reflection of the broader economy dealing with the post-pandemic dynamics defined by rising costs and concerns of a global growth slowdown. Shares of AMZN have been stuck for nearly the past two years and we view this earnings report as being a make or break event for the company. The challenge for Amazon this year is the difficult comps against a particularly strong 2021 along with direct exposure to consumer spending that appears fragile amid high inflation. A miss on estimates could open the door to more downside in the stock as a confirmation of a weaker earnings runway. We're taking a bearish view highlighting risks that are tilted to the downside. Why Has AMZN Stock Been Stuck? Through the market volatility over the last several months, AMZN is down about 13% in 2022 and 22% lower from its 2021 high. The stock has been bouncing around a relatively tight trading range since mid-2020 when it crossed the $3,000 level for the first time. Seeking Alpha The setup here is that from being an early pandemic winner capturing themes like "stay-at-home" shopping and remote work which boosted growth through 2021, the sense now is that the pace was simply unsustainable with a more noticeable slowdown in recent quarters. For context, total revenue in Q4 2021 climbed just 9% y/y, down from an average closer to 40% in 2020. The other story is the higher expenses that have pressured margins. Within the core retail business, everything from higher fuel costs with logistics to the tight labor market forcing rising wages at fulfillment has hit the operating income. Separately, the company continues to invest in technology and entertainment content for its Prime Video platform. The overall higher spending has forced free cash flow to reverse into a negative cash bleed. Source: Company IR The silver lining here has been the strength in the Amazon Web Services (AWS) segment which saw sales climb 40% y/y in the last quarter with a 48% increase in operating income. Simply put, the cloud services business in AWS has carried Amazon while the larger e-commerce side between North America and the International group has been a drag on the results. In terms of guidance, management expects Q1 net sales between $112 billion and $117 billion representing 3% to 8% y/y growth over Q1 2021. While the company does not offer EPS targets, the guidance issued during the Q4 earnings release was for operating income between $3.0 and $6.0 billion, down from $8.9 billion in the period last year. The messaging was for ongoing cost pressures expected to continue through 2022. So putting it all together, the stock has been consolidating some of these near-term earnings headwinds against what remains a positive long-term outlook. What To Expect From Amazon Earnings Amazon is scheduled to report its Q1 earnings on Thursday, April 28th after the market close. The current consensus revenue estimate at $116.5 billion, up 7% y/y, is at the top end of the management guidance range. The market estimate for Q1 EPS of $8.47, down 46% from $15.79 in the period last year, is consistent with the trend in operating income and margins over the last few quarters. Seeking Alpha From Amazon's earnings history, we highlight that the company has a mixed record of beating the estimates in recent years, missing the top-line consensus in the last three quarters by a marginal amount. The company has also missed the EPS estimates in five quarters over the last four years, sometimes by a wide margin This is largely due to the scale of the operation with many moving parts. Notably, the Q4 EPS of $27.75 included a gain of $11.8 billion from the company's common stock investment in Rivian Automotive Inc. (RIVN) which completed an IPO last November. Considering RIVN is down nearly 70% this year, part of that windfall will be reversed. In other words, some below-the-line accounting has added to the earnings swings. Seeking Alpha What Is Amazon's Forecast? This upcoming earnings release from Amazon covers what was an eventful quarter. The year started with the Omicron-variant Covid surge that resulted in disruptions across the economy. The business may have even seen a temporary gain from shoppers ordering more online in the early part of January. Macro indicators were otherwise resilient in Q1 with strong jobs growth in the U.S. that surpassed expectations while data for retail spending also maintained momentum from 2021, all of which is a positive read for the company. On the other hand, keep in mind that in the first half of last year, the U.S. was benefiting from a boost coming from several rounds of stimulus that has likely left a high watermark for comparison. We now get to see what the company looks like under a more normalized operating environment. The headline estimate for 7% sales growth this quarter is hardly a level to get excited about for what should be a "high-growth" leader. There is a sense that the conditions have deteriorated more recently, including with the energy price spike from the Russian invasion of Ukraine in February. The narrative has been that persistent inflation, approaching a 9% y/y/ level in the U.S. and also climbing in other countries is pressuring consumers. For Amazon, the risk is that customers pull back on spending while its costs also go up in terms of logistics. On this point, Amazon announced a new 5% fuel and inflation surcharge to U.S. third-party vendors who use the company's fulfillment service to pass along some of the costs. Connecting the dots, there's a good chance the company made this move with an eye on the direction Q1 expenses were going as a bearish signal for this report in our opinion. In March, Amazon also announced a 20-for-1 stock split, that is expected to go into effect in June. Cynically, we can argue that Amazon went in this direction looking for something to jump-start the enthusiasm in the stock beyond the underlying financials. A bullish or bearish view on Amazon largely comes down to a macro call. If there is a view that the U.S. will fall into a recession, or even underperform GDP expectations, it's clear to us that Amazon will feel the impact through softer demand and weaker than expected growth. A big uncertainty right now is the strength in consumer spending over the next few quarters into a Fed rate hiking cycle. By sector, the dynamics extend globally. While the international segment of online retail has always been seen as a high growth opportunity, sales fell 1% y/y in the last quarter with a record segment loss of -$1.6 billion. The stronger Dollar as a theme in 2022 doesn't help the near-term outlook and we expect another soft quarter. AWS has been the proverbial "Ace up the sleeve", leading growth supporting firm-wide operating income. Any sign that business investment spending towards the cloud is slowing can also represent a bearish headwind for Amazon. According to consensus estimates, the forecast is for full-year 2022 revenue growth of 15% with the company maintaining that momentum over the next five years. While the market sees 2022 EPS of $47.50 declining 27% compared to 2021, the outlook is for a rebound in 2023 toward $72.50 averaging 43% earnings growth per year through 2026. Much of this trend considers an outlook for normalizing supply-chain disruptions and improving margins going forward. Overall, we're skeptical on the earnings side with a view that the forecast is a bit too aggressive as managing costs should be challenging as the company continues with its aggressive global expansion strategy. Seeking Alpha Is AMZN Stock Overvalued Now? As it relates to valuation, we're looking at next year's consensus EPS estimate for AMZN in 2023 implying a forward P/E of 40x. This level represents a premium compared to other mega-cap tech leaders like Microsoft Corp. (MSFT) at 26x, Apple Inc. (AAPL) at 25x, and even Meta Platforms Inc. (FB) at 13x. Part of that reflects Amazon's stronger earnings growth outlook over the next several years, at least based on the consensus. Data by YCharts The key here is to recognize that the company has a large split between the retail business and AWS cloud computing side that currently generates the bulk of its income despite only representing 13% of total sales. It's that balancing act between the capital-intensive global logistical operation against the highly profitable AWS brand that makes AMZN difficult to analyze. The risk is that larger losses from retail end up overwhelming the more positive trends in AWS. In our view, AWS as a stand-alone would be attractive while the e-commerce and related consumer services ecosystem are at higher risk and make AMZN expensive into the current macro headwinds. Is AMZN Stock A Buy, Sell, Or Hold? The call we're going with for Amazon's Q1 earnings report is rating shares as a tactical sell. For long-term investors, it's probably fine to hold out considering shares have already been in a steep decline, but our message here is to expect continued volatility. We believe the top-line and EPS forecast for the current quarter and the rest of 2022 are too aggressive, with the market underestimating both the headwinds for consumer spending as well as surging cost pressures that can limit earnings. The stock traded under $2,700 as recently as early March and that level now becomes the first level of support. This is a stock that has underperformed the broader market over the past year, with the stage now set for a deeper breakdown with a reassessment of the long-term earnings outlook. On the upside, the company is going to need both a solid beat on Thursday along with more positive comments regarding the forward outlook, which we view as unlikely. A resolution to the Russia-Ukraine crisis would also help to improve market sentiment overall as positive to the growth outlook. Monitoring points this quarter will be the trend in sales and core margins as a gauge of operating momentum.
The Original Article can be found on Seeking Alpha

I’m an Amazon seller – my Costco side hustle made $6,000 by just shopping at the store... - The US Sun

ONE savvy Amazon seller has managed to bank $6,000 after making a simple shopping run at Costco. According to data from Side Hustle Nation, the average American earns $1,122 per m …

Read more here
I’m an Amazon seller – my Costco side hustle made $6,000 by just shopping at the store... - The US Sun

Amazon’s Counterintuitive Next Big Move — Helping Brands Sell Off Amazon - Retail TouchPoints

With 2 million third-party sellers accounting for more than half of its retail revenue, Amazon’s relationship with the businesses that sell on its platform has become essential to …

Read more here
Amazon’s Counterintuitive Next Big Move — Helping Brands Sell Off Amazon - Retail TouchPoints

Amazon's top-selling string lights are just $17, today only - Yahoo News

Fall is officially here and that means it's time to give your home a seasonal refresh. If you like a little sparkle, you don't have to wait until the holidays to put up lights — Am …

Read more here
Amazon's top-selling string lights are just $17, today only - Yahoo News

Amazon's Selling A Ton Of These Cheap, Stylish Clothes That Could Easily Cost 3x More Than They Do - The Zoe Report

Amazon is no longer the fashion girl’s best kept secret — these days, savvy shoppers far and wide know to turn to the E-commerce giant for everything from unique party dresses and …

Read more here
Amazon's Selling A Ton Of These Cheap, Stylish Clothes That Could Easily Cost 3x More Than They Do - The Zoe Report

Amazon Great Indian Festival Sale 2022: Best Selling Kitchen and Home appliances of all time - Economic Times

Kitchen & Home Appliances Check out the best deals here FAQs on Amazon Great Indian Festival Sale 2022 Q1. When will the Amazon Great Indian Festival Sale 2022 begin? Q2. Wha …

Read more here
Amazon Great Indian Festival Sale 2022: Best Selling Kitchen and Home appliances of all time - Economic Times