Amazon Reports Earnings on Thursday: 5 Important Things to Watch

Along with e-commerce sales figures that are expected to be up strongly, AWS' performance and spending growth are among the things to monitor as Amazon reports.
Original:  (AMZN) - Get Report is up nearly 50% from its March low and more than 30% on the year, as COVID-19 lockdowns lead its orders to surge in the U.S. and elsewhere.

It’s safe to assume that investors will be expecting strong top-line numbers when Jeff Bezos’ company, which now has a $1.2 trillion market cap, reports on Thursday afternoon. Currently, the consensus among analysts polled by FactSet is for Q1 revenue of $73.03 billion -- up 22% annually and above the guidance range that Amazon shared in January -- and GAAP EPS of $6.32 (down 11% due to aggressive spending).

Amazon typically provides sales and operating income guidance in its reports. For Q2, the revenue consensus stands at $76.69 billion (up 21%) and GAAP op. income of $3.94 billion (up 5%).

Here a few things to keep an eye on as Amazon reports after the bell on Thursday and hosts an earnings call at 5:30 P.M. Eastern Time.

1. Direct E-Commerce Sales

All signs suggest Amazon’s direct sales of goods have shot higher in March and April, particularly for groceries and other consumer staples. The consensus is for Amazon’s Online Stores (direct e-commerce) revenue to be up 18% in Q1 to $34.76 billion, an acceleration from Q1’s 15% growth.

Thanks in part to Online Stores growth, the consensus is for Amazon’s North American segment to post revenue of $43.62 billion (up 22%), and for its International segment to post revenue of $18.78 billion (up 16%). The dollar’s recent strengthening is a bit of a headwind for International growth.

2. Seller Services and Ad Revenue

Sales of many items sold by Amazon marketplace sellers have undoubtedly received a boost in recent weeks as well. However, with Amazon prioritizing the delivery of groceries and other “essential” items, delivery times for many “non-essential” items offered by marketplace sellers have often gone from 1-2 days to 2-3 weeks or more.

As a result, Amazon Third-Party Seller Services revenue, which covers things such as commissions and fulfillment services, is dealing with both tailwinds and headwinds right now, as is Amazon’s ad business, which depends heavily on listings from marketplace sellers. The consensus is for Third-Party Seller Services revenue to be up 28% to $14.23 billion, and for Amazon’s “Other” revenue (dominated by ads) to be up 37% to $3.73 billion.

3. AWS’ Performance

Lockdowns are driving major usage spikes for a variety of popular remote work/learning and digital content apps and services, and that in turn is a positive for Amazon Web Services (AWS), whose infrastructure is used to support many of these apps and services.

On the other hand, as is the case for many other enterprise tech firms, the fact that salespeople and systems integrators often aren’t able to meet with clients in person right now is likely weighing on AWS’ current deal-closing rates. Also, there have been reports of companies that are seeing major revenue pressures right now asking AWS and other public cloud providers to defer payments and/or restructure long-term contracts.

The consensus is for AWS revenue to be up 34% in Q1 to $10.29 billion, and for AWS operating income to be up 33% to $2.95 billion.

4. Spending Growth

Amazon was already spending aggressively prior to the COVID-19 pandemic -- particularly on building out its delivery operations as it tried to make 1-day Prime deliveries the norm. And with the company aggressively hiring workers to help deal with soaring orders, temporarily hiking wages for warehouse and delivery workers and also dealing with AWS traffic spikes, spending is likely up strongly right now in several areas.

For reference, Amazon’s shipping expenses were up 43% annually in Q4, and its fulfillment expenses were up 22%. Direct purchases of property and equipment (driven by warehouse and logistics investments) were up 42%, while spending on property and equipment via capital leases (driven by AWS capex) was up 14%.

5. Stats About Online Grocery Sales

In its Q4 report, Amazon disclosed that the number of U.S. cities and towns that can get free 2-hour grocery delivery (typically subject to a $35 minimum) via its Amazon Fresh and/or Whole Foods grocery delivery services had grown to more than 2,000. The company also boasted that Amazon Fresh/Whole Foods delivery orders more than doubled annually in Q4.

Considering how much Amazon’s grocery deliveries appear to have soared in March and April, it wouldn’t be surprising to see the company share another stat or two about its online grocery operations.

Amazon is a holding in Jim Cramer's Action Alerts PLUS member club