Wall Street is largely bullish on the cloud and commerce powerhouse these days, with analysts expecting earnings per share of $5.65 for the quarter. Here are a few key things to watch for in Amazon's next earnings, which posts on Thursday after the close.
1. Holiday Results
The fourth quarter is a big one for Amazon thanks to the holiday shopping season, and all signs suggest that 2018 was no different. Stifel's Scott Devitt anticipates revenue at the high end of the range that Amazon guided for, forecasting $71.9 billion in total revenue for the quarter thanks to a record shopping season. Amazon's holiday performance also has the effect of driving Prime subscription sign-ups, another source of revenue for the company, with Devitt estimating that the percentage of U.S. households with Prime surpassed 50% in November or December last year: "We believe the record holiday season for U.S. eCommerce, strong Prime membership growth, and investments in free shipping bode well for Amazon's retail business in 4Q," he wrote. On the international stage, however, Amazon has run into some trouble in its commerce business, particularly in India, in the form of local competition and forthcoming regulations on foreign e-commerce operators, and investors may seek more detail on the future impact of such variables.
2. Growth in Advertising
As growth in Amazon's main e-commerce segment decelerates, many investors have turned their attention to what could someday be a considerable source of revenue for Amazon: Its growing advertising business. PiperJaffray's Michael Olson has postulated that by 2021, profit from advertising will exceed that of AWS. What can investors expect in the meantime? Amazon doesn't break out advertising revenue in its quarterly reporting, instead folding it into an "other" segment. But it's widely expected to be a significant growth center for Amazon coupled with high margins, with Amazon in the process of piloting or rolling out new options for advertisers eager to get their products in front of Amazon buyers. Expect updates or hints on where Amazon's advertising segment is headed from here.
3. AWS Margins
AWS only accounts for about 10% of total revenue, but it's Amazon's highest-margin business and one that investors should pay close attention to. It's also continuing to see sales growth at a good clip, driven by continued cloud adoption worldwide. In its October 2018 earnings report, which delivered mixed results overall, Amazon reported healthy sales growth in its AWS segment coupled with margin expansion of over 500 basis points. In Amazon's next earnings, Canaccord Genuity's Michael Graham advised Amazon investors to look out for "moderating growth" at AWS alongside further expansion of margins.
4. Shipping Ambitions
According to several recent reports, Amazon is trying to reduce its reliance on incumbent shippers, in part by testing its own home-delivery service, Amazon Shipping, and by building out its own trans-Pacific shipping operations. In a recent note, Loop Capital Markets' Anthony Chukumba outlined the benefits to such efforts: Disentangling from FedEx (FDX) - Get Report , UPS (UPS) - Get Report and the USPS, adding leverage in future negotiations with such entities, and turning cost centers into potential profit centers. Chukumba suggested that for Amazon, buying FedEx could be a better option than doing all the heavy lifting itself: "Amazon could make an accretive acquisition of the best global network for a fraction of the cost of building it themselves (we recently attended a meeting at FedEx headquarters at which the CFO made exactly the same point)," he wrote. Look for analysts to probe Amazon on what its ambitions are in shipping.
5. Healthcare, Etc.
Amazon is also spreading its tentacles into an array of other areas, from brick-and-mortar groceries and pharmaceuticals to Amazon Business and more. While neither of those have translated into material revenue yet, analysts believe that they represent substantial growth opportunities, and investors will be no doubt on the lookout for hints on what projects are on deck this year.
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