Amazon (AMZN) Q2 Earnings Preview

by Dan July 28, 2016 1:21 pm • Trade Ideas

Event: (AMZN) reports their Q2 results tonight after the close. The options market is implying about 7% one day move tomorrow, which is shy of its 10 year average one day post earnings move of 9.4%, and below the 4 qtr average of 8.25%. With the stock at $747.50 the July 29th weekly 747.50 straddle (the 747.50 call premium + the 747.50 put premium) is offered at about $52, or about 7% of the stock price, if you bought that, and thus the implied earnings move, you would need a move above $799.50, or below $695.50 by tomorrow’s close to just break-even.  

Price Action / Technicals:  Shares of AMZN are up 10.5% on the year, and down about $10, or about 1.3% from its all time highs made a couple weeks ago.  The stock is up nearly a whopping 60% from its February 2016 lows, has been consolidating the last few weeks since breaking out to a new all time high in early July.

The one year chart below shows the stock’s well defined uptrend since February, reasonable technical support at $700, the recent flag and a breakout level at $757:

[caption id="attachment_65368" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]

Sentiment: Wall Street analysts, much like AAPL, FB & GOOGL remain overwhelmingly positive on AMZN with 40 Buy ratings, 6 Holds and NO Sells with an average 12 month price target of $821, or 10.5% above current levels.

Expectations from RBC Capital’s Mark Mahaney: 


My View Into the Print: This is just not my cup of tea. I was wrong the whole way up last year as their lack of profitability and investor focus on a small but high growth part of their business (AWS), and their willingness to disregard all else in the name of AWS growth spooks me.  Just to put the lunacy in context, last year on their $107 billion in total sales, the company recorded a net profit of $596 million on a GAAP basis, operating profit of only $2.23 billion. While bulls will point to eBitda of $10.8 billion, I think it is important to note that its the B in the whole ebitda thingy that should not be forgotten. And any way you slice it net income or operating profits are ridiculously low levels of sales.  If you have solely focused on valuation for reason to not own, or short AMZN then it has been a volatile 20 years for you. The stock has never traded at a multiple where one could make the argument for growth at a reasonable price, as can be said for Google, and maybe Facebook given its profit history.

So Sorry, I can’t be of much help on this one. I’m a very happy long time AMZN customer I can tell you that the company’s lack of focus on profits has benefited me immensely on a personal level. But it does not motivate me as a prospective investor.  I know that’s not very helpful, but wanted to lay out some color prior to tonight’s earnings for those who have conviction in either direction.