Amazon (AMZN) Q2 Earnings: What to Expect

Amazon sign on the window of the Amazon Hub Locker in the downtown area, Silicon Valley
Credit: Andrei / stock.adobe.com

Is Amazon (AMZN) being given enough respect? While no one is questioning the company's dominance, Amazon stock had been somewhat dormant and range-bound despite the fact the retail giant was growing faster than its FAANG peers.

But it would seem the market is starting to evaluate the stock based on faster growth metrics. Is that the beginning of a new trend? The e-commerce and cloud giant is set to report second quarter fiscal 2021 earnings results after the closing bell Thursday. Amazon stock has soared about 30% since March 8, rising from about $2950 to an all-time high of $3773 earlier this month.

The reason for the recent surge in AMZN stock price? Not only does Amazon continue to benefit from strong demand acceleration caused by the pandemic, the company has executed an effective strategy to grow its Prime members, while getting Prime members to spend more during each transaction. Amazon Web Services is another strong growth factor, leading a cloud computing industry which is estimated to be worth $791 billion and projected to grow at a compound annual growth rate of 18% through 2028. This growth benefits AWS, in particular, given its focus on areas such as IaaS which grew 41% in 2020 to total $64.3 billion, up from $45.7 billion in 2019, according to Gartner.

Amazon retained the No. 1 position in the IaaS market in 2020. Plenty of evidence suggests that Amazon’s market share gains in these areas are here to stay. When factoring total revenue growth potential, operating margin expansion, Amazon has as executed at near perfection, topping revenue and profits estimates in twelve straight quarters. And with the stock trading at less-than four times forward revenue it would be a mistake to part with this long-term winner. But in the near term, the company will need to deliver a top- and bottom-line beat, along with upside guidance to keep the bulls happy.

In the three months that ended June, the Seattle-based company is expected to earn $12.22 per share on revenue of $115.07 billion. This compares to the year-ago quarter when earnings came to $10.30 per share on revenue of $88.91 billion. For the full year, ending in December, earnings are expected to rise 33% year over year to $55.86 per share, while full year revenue of $490.27 billion would rise 27% year over year.

As noted, Amazon has been a major beneficiary of the pandemic-driven acceleration of both online shopping and the shift to cloud computing. In that vein, despite increased competition from Microsoft’s (MSFT) Azure, Amazon’s AWS cloud platform, which accounts for the lion-share of Amazon’s quarterly profits, posting a current operating margin of 30% with revenue growth rate of 29.53% in 2020.

This growth trend is expected to continue, driven by not only improving outlook but also the moat surround the business, adopted by customers such as Netflix (NFLX), Twitter (TWTR),Disney (DIS), among others. For Q2 analysts estimate AWS revenue growth of 30%, reaching $14.7 billion. In the first quarter, AWS revenue reached $13.5 billion, rising 32% year over year, besting the 22.5% growth rate expected. Overall Q1 revenue Q1 surged 44% on the year to $108.52 billion, while Q1 EPS of $15.79 topped consensus by $6.18.

Investors will look to see if AWS continues its re-acceleration on Thursday. But it would be a mistake to bet agains the e-commerce and cloud leader and its ability to dominate.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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