With a gain of 52% year to date, besting the 11% rise in the S&P 500 index, Amazon (AMZN) stock still ranks as one of the mega-cap top-performers in the market. And this is despite a 7% decline over the past month.
Investors want to know if the company can maintain its strong momentum. The nation’s second-largest retailer is set to report third quarter fiscal 2023 earnings results after the closing bell Thursday. The e-commerce giant's growth and efficiency strategies have begun to bear fruit. In the most recent quarter, Amazon showed signs that its cost-cutting initiatives are working as profits have significantly improved across various segments, save for AWS, which suffered a slight dip amid rising expenses.
In Q2 the company saw significant improvements not only in revenue and earnings, but also in areas like operating cash flow, EBITDA and net profits. Notably, the North American segment, which suffered a loss of $627 million in the second quarter of 2022, reversed that to a gain of $3.21 billion. These bottom line increases were driven by a combination of high-margin advertising revenue and higher unit sales, which helped the company spread its fixed costs across a greater volume of revenue.
All told, Amazon now has slimmer cost profile, which will lend to faster earnings growth in the quarters ahead. From a valuation perspective, while Amazon stock is not as cheap as it was at the start of the year, its shares still look like a bargain relative to the company’s long-term potential. On Thursday beyond a top- and bottom line beat, investors will want strong profit guidance to support the long-term return investment thesis.
In the three months that ended September, the Seattle-based company is expected to earn 55 cents per share on revenue of $134.21 billion. This compares to the year-ago when earnings were 28 cents per share on revenue of $127.1 billion. For the full year, ending in December, earnings are expected to be $2.07 per share, reversing a year-ago loss of 27 cents, while full year revenue of $538.13 billion would rise 4.7% year over year.
Amazon’s expected full-year profit of $2.07 per share is notable considering its year-ago loss of the 27 cents. As noted, this is due to the company's strategic cost-control efforts to right-size the business. Some of the recent cost-saving measures include shutting down unprofitable businesses, reducing its global headcount and reprioritizing resources. The goal is to remain leaner and stronger, particularly during the period of rising interest rates and inflation, which are present threats to consumer spending.
As the company is aggressively cutting costs, Amazon remains committed to investing in the long-term potential of its business. The effectiveness of these initiatives were evident in the company’s financial results. In the second quarter, Amazon beat on both the top and bottom lines, posting adjusted EPS of 65 cents per share which beat estimates by 31 cents. Q2 revenue of $134.38 surpassed Street estimates by $3.04 billion, rising 10.8% year over year. But it wasn't all good news.
As noted, the AWS segment suffered a decline in profits from $5.72 billion to $5.37 billion, despite the 12% increase in revenue to $22.1 billion. The good news is that the management noted that this was due to voluntary spending aimed at generating long-term growth. Nevertheless, from a valuation perspective, Amazon stock should remain a staple in any growth portfolio for the next 12 to 18 months. For that to matter in the near term, on Thursday beyond a top- and bottom line beat, investors will want strong profit guidance to support the long-term return investment thesis.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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