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Amazon Stock: What Investors Should Know Ahead Of Q3 Earnings

Amazon is gearing up to report Q3 earnings. Here is what investors should know ahead of the event.

Third quarter earnings season is upon us. Leading into it, Amazon stock  (AMZN) - Get Amazon.com, Inc. Report is still looking to climb back to its early July all-time highs, as shares remain in a drawdown of around 8%.

Today, the Amazon Maven talks about expectations for the pre-holiday period. How strongly does Wall Street project revenues and earnings to be? What will be the main topic of conversation on Amazon’s earnings day, which is expected to take place around October 27? Is the stock a buy ahead of earnings?

Figure 1: Amazon Prime boxes.

Figure 1: Amazon Prime boxes.

(Read more from the Amazon Maven: How Amazon Can Profit Another $3 billion In 2022)

What Wall Street expects

Consensus expectation is for revenues to climb 16%, according to Seeking Alpha. However, projected EPS of less than $9, if delivered, would represent a year-over-year drop of nearly 30% over an impressive Q3 of pandemic-driven results in 2020.

For the sake of statistics, Amazon has topped Wall Street’s revenue expectations eight times in the past ten quarters. However, the giant $2 billion miss last time was the worst of the past five years, at least. On earnings per share, Amazon has been more erratic: seven beats in the past ten quarters, with EPS topping expectations by as much as $8.70 and lagging by as much as $1.24.

Compared to consensus revenue of $111.7 billion, Amazon guided for only $109 billion at the midpoint and $112 billion at the high end of the range. It looks like analysts are betting on the company’s top-line projections being too conservative.

(Read more from the Amazon Maven: AMZN Premarket: Can Amazon Stock Finally Build Momentum?)

Key topics of conversation

It is very likely that analysts and investors will be paying close attention to one topic more than the others: the performance of Amazon’s online stores, which last quarter logged growth of “only” 13%. See graph below for some perspective on North America’s revenue trend since 2014 and notice the sharp drop in Q2 growth, represented by the orange line.

Figure 2: Amazon's North America revenues and growth since 2014.

Figure 2: Amazon's North America revenues and growth since 2014.

E-commerce hiccupped in the second quarter because the slow unwinding of the pandemic proved to be disruptive to stay-at-home shopping habits. Can Amazon recover this quarter? If categorically so, Amazon stock might have its best chance at rallying after earnings.

It will be interesting to hear from CFO Brian Olsavsky, during the conference call, about the supply chain. Have the recent disruptions had a negative impact on Amazon’s past or expected performance in digital retail? Will supply chain bottlenecks hurt the holiday season? An optimistic read on these topics, if it happens, could also serve as short-term fuel for the stock price.

The other important subject will likely be Web Services. Last time, Amazon’s cloud compute and infrastructure division delivered the goods: strong growth of 37%, the highest since late 2019. The heavier mix of cloud revenues probably helped to push margins higher, which in turn allowed Amazon to deliver an EPS beat despite the disappointing top-line numbers.

Lastly, keep an eye on parts of the business that will probably benefit from a post-pandemic return to normal. Physical stores should produce decent numbers, as should other items like tech hardware and some of Amazon’s services. The ads business is also worthy of some attention.

Join us for the live blog!

As usual, the Amazon Maven will cover the earnings release on October 27, after the closing bell, via live blog. Be sure to come back to thestreet.com/amazon often to check our pre-earnings material, and to follow the discussions on earnings day.

Twitter speaks

Amazon will report earnings on October 27, and the Amazon Maven will cover the event via live blog. What do you think will be the most important topic of conversation in Q3?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)