Amazon (AMZN) will look to extend what, so far, has been a strong showing for tech stocks this earnings season, which has pushed the tech-heavy Nasdaq Composite Index to all-time highs.
The e-commerce juggernaut, which is no stranger to high expectations, is set to report first quarter fiscal 2019 earnings after the closing bell on Thursday. Ahead of the report, investors want to know whether there is such a thing as “growth fatigue?” Unlike previous quarters, revenue growth is going to be a key area of focus for Wall Street analysts — many of whom are looking for reasons to justify raising their price targets.
Amazon, which reached the $1 trillion mark last September, has seen its stock hover just under $1T and has since traded in a tight range. And to the extent the company can demonstrate that it’s still a growth power, the stock should respond accordingly. What’s more, investors will look for assurances that the company maintains its visionary stature, when compared to its technology peers such as Apple (AAPL) and Google (GOOG , GOOGL). Amazon CEO Jeff Bezos isn’t worried about that.
In his annual letter to investors last week, Bezos talked about the company’s willingness to make smart bets to remain innovative. He added that he would be willing to lose money if in the event an experiment doesn’t work. Under Bezos’ leadership Amazon has won more of its bets than it has lost. And he said the company can continue to grow its e-commerce footprint, while leveraging its dominant AWS cloud, while expanding into new growth markets.
On Thursday investors will look to see the extent to which Bezos confidence will be shown in the company’s results and outlook for 2019. For the three months that ended March, the Seattle-based company is expected to earn $4.72 per share on revenue of $59.65 billion. This compares to the year-ago quarter when earnings came to $3.27 per share on revenue of $51.04 billion. For the full year, EPS is expected to rise 36% year over year to $27.43 per share, while revenue of $275.1 billion would rise 18% year over year.
While Prime continues to serve as the key catalyst in strengthening Amazon's presence in the online retail space, AWS (Amazon Web Services) remains the bread winner. “Amazon is also starting to show more profit, with its high-growing AWS and advertising revenue streams also its most profitable,” noted JPMorgan analyst. AWS revenue growth is still strong, delivering a 45% increase in the fourth quarter, growing to $7.43 billion, topping estimates of $7.3 billion.
Just as impressive, Amazon’s “Other” segment, mostly comprised of its advertising business, jumped 95% to $3.4 billion in Q4 revenue. And Wall Street expect these trends to continue this quarter. “Amazon is reaccelerating investments after a ‘banking year,’ but we still expect 60 basis points of operating margin expansion in 2019 given the scale and efficiencies built into the business, along with dual high-growth, high-margin revenue streams in AWS and advertising,” JPMorgan added.
Assuming AWS grows in a range of 42% to 45% again this quarter, that translates to total revenue of close to $10 billion, enough to surpass Street forecast — something Amazon has done the previous four quarters. As such, despite the recent uptick in share price, I would continue to accumulate Amazon shares ahead of Thursday’s results.