Amazon Earnings: What to Watch on Thursday, Oct. 29

Amazon.com (NASDAQ:AMZN) is slated to report its third quarter 2020 results after the market close on Thursday, Oct. 29.

The e-commerce and technology giant is barreling toward its report on a strong note. In the second quarter, the company trounced Wall Street’s estimates for both the top and bottom lines. 

As with both the first and second quarters, investors can expect that the COVID-19 pandemic boosted the third quarter’s revenue, while having the opposite effect on profits. 

Amazon shares have soared 77.1% in 2020 through Oct. 16, while the S&P 500 has returned 9.5% over this period.

Packages moving on conveyor belts in an Amazon fulfillment center.

Image source: Getty Images.

Key numbers

Metric Q3 2019 Result Amazon’s Q3 2020 Guidance Amazon’s Projected Change YOY Wall Street’s Q3 2020 Consensus Estimate Wall Street’s Projected Change YOY

Revenue

$70.0 billion

$87 billion to $93 billion

Approximately 24% to 33%

$92.5 billion

32%

Adjusted earnings per share (EPS) 

$4.23

N/A

N/A

$7.25

71%

Data sources: Amazon.com and Yahoo! Finance. YOY = year over year. Wall Street estimates as of Oct. 16. Note: Amazon does not provide earnings guidance. 

Management expects third quarter operating income to range from $2 billion to $5 billion. This guidance assumes more than $2 billion of costs related to COVID. The company’s operating income was $3.2 billion in the year-ago period, so its guidance range represents operating income declining by 38% to rising by 56% year over year. The uncertainty surrounding the pandemic is likely a main reason for the big range. 

As the chart shows, Wall Street is projecting earnings per share to skyrocket 71% year over year. No matter how you slice it, that result would reflect super performance. However, investors should be aware that part of the reason this expected percentage increase is so high is because the company is facing an easy year-ago comparable. In the year-ago period, EPS declined 26% year over year, driven by Amazon’s heavy spending on upgrading its standard Prime free delivery benefit from two days to one.

For context, in the second quarter, Amazon’s revenue surged 40% year over year (41% in constant currency) to $88.9 billion. Net income landed at $5.2 billion, which translated to EPS of $10.30, up 97% from the year-ago period.

Wall Street was looking for EPS of $1.46 on revenue of $81.5 billion. So Amazon cruised by the second quarter top-line consensus estimate and absolutely crushed the profit expectation.

Amazon Web Services’ overall growth

The company’s earnings are largely driven by its cloud computing service, Amazon Web Services (AWS). So, this business is much more important than suggested by its percentage contribution to total revenue. As such, investors should continue to focus on AWS’ overall results.

In the second quarter, AWS’ revenue surged 29% year over year to $10.8 billion, or 12% of total revenue, while operating profit soared 58% to $3.4 billion, or 59% of total operating profit.

Fourth quarter guidance

The market’s reaction to Amazon’s report will probably hinge more on fourth quarter guidance than third quarter results. That’s because the market looks ahead. (Amazon provides guidance for revenue and operating income but not for earnings. The operating income outlook, however, gives investors a ballpark idea as to what year-over-year percentage change the company expects on the bottom line.)

So, investors should know Wall Street’s expectations for the fourth quarter. For the big holiday quarter, analysts are modeling for revenue to increase 27% year over year to $111.4 billion and adjusted EPS to rise 37% to $8.87. 

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