Analysis, Featured,

Analysis of Amazon ahead of Q3 2016

Amazon, has been a momentum stock the last decade. Currently trading at 200 times earnings, it’s a lofty price for a 21 year old company. Its price:sales ratio has even increased, from about 2x then to about 3x now. These high multiples has lured short-sellers to place a 5.3 billion dollar short bet.
In other words some people are bearish while other are bullish.

So let’s dig in and do some of our own research.

I like to start at the last quarter’s report.

Results
Net sales increased 31% to $30.4 billion in the second quarter, compared with $23.2 billion in second quarter 2015.

Third Quarter 2016 Guidance 

• Net sales are expected to be between $31.0 billion and $33.5 billion, or to grow between 22% and 32% compared with third 
quarter 2015.
• Operating income is expected to be between $50 million and $650 million, compared with $406 million in third quarter 2015.
• This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal 
settlements are concluded.

Retail

For this section, I’m mostly interested in Revenue (Net sales). So between March and June this year Amazon generated $30.4 billion in net sales.  If they increase their revenues with 9% (the same as last year Q2 vs Q3) they will reach $33.25 billion in sales. However, Prime Day beat last years sales with 60% and some estimated this to have a $600 million effect on the revenues.

Google Trend is my favorite tool for online companies and Amazon fits right in there. Here is a graph of Amazon searches for the last 24 months.

One can clearly see the momentum buliding. Looking closer to the numbers one can see that the last quarter has on avewrage 11% higher search score which would correlate some much higher sales. So my estimate would be somewhere in the $34 billion area.

Amazon Web Services

Now let’s look at the current cash cow of Amazon, with only 10% of revenues but generating 50% of their current profits, AWS is an integral part of a good earnings report. Let’s look  the search volume for AWS compared to the competition.
Amazon Web Services Search Vs. Azure

AWS search score has increased with over 30% since last year. Comparing with Azure, it has gone from a 44% gap to a 53% gap. So we should expect continued growth from AWS which outpaces competition.

So where can we go from here?

With a beat, I think we should see a push towards $900 and with a miss we could drop down to $750. Worst case scenario there is solid support at $700. The highlighted box below shows a 20% pop last time Amazon was at an all-time high and beat the earnings so a $900 handle is not impossible. But, as always, do your own homework.


Let me know what you think.

 Continue the discussion! 

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