Amazon's (AMZN ) massive growth spurt was followed by an abrupt slump. The tech giant is now fighting to return to profitability and sustained growth for its $1.3 billion internet empire. Amazon's stock price has gained under 50% since the beginning of October, after falling 49% last year.
AMZN is also fighting its way to its peak of 2021. Amazon shares have fallen by about 34% since a split-adjusted peak of 188.65, reached in July 2021.
Amazon has boosted its artificial intelligence efforts to get back in the growth lane. It is also betting on a busy shopping season during the holidays. Amazon is also facing a major fight with the U.S. Government. A big test will be the earnings report due Thursday.
Is Amazon stock worth buying? What you need to know about the recent performance of AMZN, the stock of Amazon's tech giant.
Amazon Q3 Earnings - What to Expect
Amazon will announce its third quarter earnings on Thursday, October 26. Analysts are generally bullish about the earnings report.
In a client note published on October 19, Oppenheimer analyst Jason Helfstein ranked Amazon as the top choice for 2024. He noted that the company had exposure to wealthy consumers, advertising possibilities and "significant potential" for ecommerce margin improvements.
Amazon's stock price has remained a bit erratic in recent months, as it has been leading up to its earnings. In September, shares fell by 8%. This was the worst month since February for the stock.
In a client note dated Oct. 18, Wedbush analyst Scott Devitt stated that Amazon is "generally better positioned than investor fears." He said that the improved margins in e-commerce and Amazon Web Services' growth were potential catalysts.
FactSet polled analysts who predict earnings per share of 58 cents on revenue of 141.5 billion dollars. This represents a 107% increase in earnings and an 11.3% increase in sales.
Amazon Stock: Why investors are closely watching AWS
Amazon's cloud computing division is its main source of profit. Analysts will be closely watching the AWS trends in the next report.
This year, the business is under pressure as companies reduce their software expenditure. AWS revenue increased 12% over the previous year for the second quarter to $22.1 billion. This compares to a 15% increase in the first quarter.
UBS, for example, rates Amazon's stock as a buy with a price target of 178. Analyst Lloyd Walmsley, however, reduced that price target last week due to potential short-term headwinds in cloud revenue.
According to FactSet, analysts expect Amazon to post an increase of 12.6% in revenue for the third quarter AWS to $23.1 billion.
Will regulators take a bite out of Amazon stock?
Amazon has begun the most significant legal battle in its 30 year history. Amazon is under intense scrutiny from regulators who are challenging its market dominance.
Amazon's regulatory issues came to light on September 26th when the Federal Trade Commission, along with 17 state attorneys general, filed a massive lawsuit against Amazon.
The FTC claims that Amazon is using its market dominance to increase prices and charge merchants more. Amazon denies the accusations, saying that the FTC "is wrong on the facts and law" and that it is looking forward to making its case in court.
The AMZN stock dropped 4% on the day that the lawsuit was filed.
The FTC's legal challenge still hasn't changed Wall Street's opinion of Amazon. FactSet reports that 92% of the 52 Amazon stock analyst's who follow the company have a buy rating.
JPMorgan analyst Doug Anmuth stated in a client note dated Oct. 3, that the lawsuit was "very much as expected" and it would be difficult to prove AMZN's illegal monopoly.
Amazon may face antitrust scrutiny in other countries. The U.K.'s top media regulator said Oct. 5, that the country would investigate the dominance Amazon and Microsoft in the cloud services market.
What about E-Commerce Spendings?
Even Amazon's Everything Store is not immune to macro-concerns about consumer spending. Amazon reported a 1% decline in sales last year for its online stores, following 37% and 21 % growth in 2020 and 201.
This year, sales have rebounded. FactSet reports that analysts predict Amazon's ecommerce business to post a sales increase of 5% by 2023. Analysts and investors have debated the strength of Amazon's overall retail business in the lead-up to the holiday season.
Amazon's low-cost Chinese competitors, PDD Holdings (PDD) Temu or the privately held Shein, are a growing threat.
A Goldman Sachs report from Oct. 12 challenged this assumption. According to the report, third-party data shows that Temu shoppers are more likely to shop at dollar stores and discount retailers than Amazon.
This is consistent with the Goldman Sachs analyst Eric Sheridan's view that Temu has a lower level of overlap with platforms that have stronger ecosystems, such as Amazon Prime households and higher-income cohorts. Temu also captures share from offline channels.
Amazon Stocks: A Busy Holiday?
Amazon announced Sep. 19, that it planned to hire 250,000 employees for its fulfillment centers and transportation in the U.S., including seasonal and part-time workers. This is ahead of the holiday shopping season. This is a 67% increase from the 150,000 employees the company hired in 2020. Amazon reported a 2% decline in online store sales for the quarter ending December last year.
Anmuth, JPMorgan's analyst, stated in his report of October 3, that some investors worry about hiring costs affecting North American operating profit. Anmuth, however, downplayed these concerns.
Anmuth wrote: "We have long considered AMZN's holiday hires as an important indicator for management's outlook on the upcoming holiday seasons." We're happy that AMZN is willing to sacrifice the incremental costs of workers in exchange for a stronger holiday demand. In that context, we consider the 250k figure to be quite bullish.
Amazon, however, is a notable exception. According to Challenger, Gray & Christmas, seasonal hiring is expected to be at its lowest level since 2008.
Amazon and the AI Arms Race
Amazon's artificial intelligence initiative is also worth watching.
Microsoft, behind AWS the second largest cloud services provider, has been a leader in adopting generative AI. Microsoft, the No. 2 cloud service provider behind AWS has taken the lead on adopting generative AI. This hot trend is expected to change the game in the cloud market and enterprise technology in general. Microsoft, just weeks after ChatGPT, which sparked the AI frenzy that continues to this day, agreed in January, to invest $10 billion into OpenAI, a startup behind the hugely successful chatbot.
Amazon responded on Sep. 25 by announcing that it would invest as much as $4 billion into AI company Anthropic, a competitor of OpenAI. Anthropic, through the deal with Amazon Web Services, will be able to use Amazon's custom chip for its AI software. Amazon will use Anthropic's software and language models across all of its businesses.
Amazon launched Amazon Bedrock in April, a cloud computing service that allows Amazon users to create AI-generated applications.
Amazon's stock rose by about 2% on the day that it announced its Anthropic Investment.
What's Behind Amazon’s 2Q Earnings Surge?
Amazon's fiscal second-quarter results report was also a major boost in August. Amazon's shares rose after it reported second-quarter sales and earnings that were better than expected on August 3. Amazon reported that it earned 65 cents per share from sales of $134.4 Billion in the second quarter. The company had lost 20 cents per share in the previous period on sales of $121.2 Billion.
Amazon's sales online grew 4%, to $53 billion.
Amazon's advertising revenues grew by 22% in the last quarter, to $10.7 billion. Amazon sells sponsorship ads on its website, and it is expanding its video ads within its Amazon Prime Video service. Amazon's growth is largely due to its high-margin advertising business.
Amazon reported its first loss in eight fiscal years last year as online sales declined and costs soared. According to FactSet, analysts predict that Amazon will report adjusted earnings of $2.21 per share this year. This compares to a loss per share of 6 cents in 2022. Revenue is expected to increase 11% in fiscal year 2023 to $570.15 Billion.
Technical Analysis of Amazon Stock
After a rough month of September, the technical ratings are just OK for AMZN. IBD's Relative strength rating for the shares is currently 88, out of 99.
Amazon also has an IBD composite rating of 85 out 99. According to IBD Stock Checkup, the best growth stocks are those with a Composite rating of 90 or higher.
The current rating shows roughly equal amounts of both buying and selling.
This guide will help you understand the IBD rating system.
Amazon Market Cap
Here you can find Amazon's stock price. Amazon's market capitalization is $1.29 trillion as of October 20. The stock's growth over time is shown below:
Since 1997 Amazon IPO 138.978 398.80
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