Amazon (NASDAQ: AMZN) is experiencing an influx of new customers due to the coronavirus pandemic. People are looking to reduce the number of trips to stores in order to avoid exposing themselves to both the virus, and the sometimes chaotic environments in these stores. Who can forget the videos of people fighting over rolls of toilet paper during the pandemic's initial panic-buying phase?
Amazon has been proving that it can handle the surge in shopping, and has been one of the most reliable companies during the pandemic. Here are three things investors should look for when it releases its third-quarter earnings on Oct. 29.
Can Amazon ramp up capacity to meet increasing demand from shoppers?
First, shareholders will want to observe revenue growth. For the second quarter, the company reported $89 billion in sales. Management is guiding another gigantic sales figure of $90 billion at the midpoint for the third quarter. And it would not be surprising should the company report its first-ever $100 billion quarter when it announces later this month.
Second, those interested in the stock will want to know what portion of that revenue came from Amazon Web Services (AWS). That's because AWS is the company's more profitable segment. In the most recent quarter, AWS made up over 50% of operating profits while only making up just 12% of overall revenue. The segment is benefiting as more businesses find it essential to maintain an online presence during the pandemic.
Third, investors will want to look at the company's forecast for the fourth quarter. Shoppers are already flocking to Amazon, and the increase in demand during the holiday season could multiply that even further. Not only will it be important to hear what management has to say about demand, it will also be crucial to know if the company can ramp up enough to meet that demand. Companies ranging from Best Buy to Target have indicated they will start promotions earlier this year to help alleviate crowds during the holiday shopping season.
Interestingly, Amazon reported third-party sales of $3.5 billion on the Prime Day event alone. The results from that event will be included in the company's forecast for its next quarter.
What it could mean for investors
Coronavirus cases are surging in many regions of the world. Along with the upcoming holiday shopping season, that should continue to give Amazon sales a boost in the near term. However, the costs of operating a business in this environment are higher. Amazon is expecting to spend $2 billion on COVID-related expenses this quarter.
Wall Street analysts expect the company to report revenue of $92.5 billion, and earnings per share of $7.25 for the third quarter. If the company reports a positive earnings surprise or indicates that surging revenue is likely to be long-lasting, look for the price of this consumer discretionary stock to rise after the announcement.
10 stocks we like better than Amazon
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Amazon wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of September 24, 2020
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.