Can shares of Amazon (AMZN) find its way back to an upward trajectory? That has been the main question over the past several months as the stock has been punished, falling more than 25% in six months, compared to the 1% decline for the S&P 500 index. Shares of the e-commerce giant are already down more than 16% year to date, including 20% just in the past thirty days alone.
While no one is questioning the company's dominance, Amazon stock, which is now trading some 26% below its 52-week high, has grossly underperformed its FAANG peers. Is now a good time to buy? That is one of the key question as the company prepares to report its fourth quarter fiscal 2021 earnings results after the closing bell Thursday. The market is re-assessing tech valuations and Amazon has seemingly gotten caught in the middle. But it’s hard to ignore Amazon’s relative value. What’s more, the Prime membership base has continued to grow despite the pandemic.
The Prime services segment has shown strong growth in the past few quarters and should continue to drive revenue, even if there is an economic downturn. The question is whether these trends can show enough strength to revive the stock. Elsewhere, not only has the company played an important role in bridging consumers with access to the things they need the most, Amazon’s AWS cloud-based solutions have also enjoyed strong demand. But for the stock price to rebound, on Thursday the market will want to see whether Amazon’s growth trends can reaccelerate in the next several quarters.
In the three months that ended December, the Seattle-based company is expected to earn $3.71 per share on revenue of $137.66 billion. This compares to the year-ago quarter when earnings came to $14.09 per share on revenue of $125.56 billion. For the full year, earnings are expected to decline 2.12% year over year to $40.94 per share, while full year revenue of $470.26 billion would rise 21.8% year over year.
Amazon's AWS cloud division, which commands more than 30% market share, is the crown jewel of the company, accounting for the lion's share of quarterly profits. Amazon will need all of the cloud growth it can get to offset recent weakness evidenced by the top and bottom line miss in the this quarter when it reported revenue of $110.81 billion, rising 15% year over year, but missing estimates close to $800 million. Q3 earnings per share of $6.12 was also disappointing, missing estimates by $2.78.
Notably, Amazon Web Services, which makes up 15% of Amazon's total revenues, rose 39% to $16.11 billion, beating the $15.48 billion estimate. AWS generated $4.88 billion in operating income in the period, while operating profit at the parent company was just $880 million. That's the good news, especially given that the global cloud computing market size is expected to reach 1.25 billion in the next seven years, for a compound annual growth rate of almost 20%, according to ResearchAndMarkets.com.
Among several factors, cloud growth will be attributed to the ongoing digital transformation across various industries, along with big data consumption. To be sure, the company is seemingly suffering due to slowing revenue growth in the retail segment, but whether it’s with Prime Video, AWS, or its various new initiatives such as its contactless store concept, Amazon still has many growth levers to pull.
But when factoring the company’s total revenue growth potential, operating margin expansion, along with the fact that the stock has fallen below $2800 since reaching an all-time high of $3773 in July, Amazon has tons of upside value ahead of Thursday’s results.
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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