Analyst consensus is for another strong quarter for sales on AMZN
Concerns of post-pandemic sales growth weigh on stock price
Antitrust concerns and proposed legislation hover over AMZN
When Amazon (AMZN) reveals its Q2 results after the market closes this Thursday, there seems to be little doubt among analysts that the online shopping juggernaut will report solid earnings growth.
So why is its stock lagging the tech-laden Nasdaq 100 (NDX) Index? (see chart below)
Maybe call it shopping fatigue. There is concern that AMZN can’t keep up its torrid pace set last year, when the pandemic sent virtually everyone who needed to buy anything to the online uber shopping mall.
Combined with the persistent issues of bipartisan support to address antitrust complaints, investors are now watching to see if AMZN’s stock price could be headed for the sales rack.
Has Online Shopping Peaked?
To be clear, the bar set in 2020 is high. Very high. Estimates for Q2 sales revenue growth are for at least 24%, according to Wall Street’s consensus views. Long tailwinds still blowing from last year’s pandemic-fueled shopping habits have not yet abated. But investors appear to be doubting that the pace can continue.
To wit: In the first half of this year, AMZN’s stock has gained 7%. Meanwhile, the tech-heavy NDX is up 14%. This despite AMZN trouncing analysts’ estimates when AMZN reported Q1 earnings of $15.79 per share, versus $9.54 per share expected. Revenue was $108.52 billion versus $104.47 billion expected.
For its part, AMZN isn’t projecting declines in Q2. Company guidance is for net sales to be between $110.0 billion and $116.0 billion, or to grow between 24% and 30% compared to the year-ago quarter.
One potential dip in sales growth might come from Amazon Prime Day, which was held June 21–22, an event AMZN has usually characterized with a string of superlatives. That language was noticeably absent from this year’s results, with the company instead opting to note that Prime Day was the “two biggest days ever” for merchants. Analysts believe that total e-commerce sales during Amazon Prime Day were about $11 billion, representing 6.1% growth from transactions during last year’s mid-October event. That would be a record, but could also reflect slower growth compared with previous years.
Supply chain issues may have contributed to a more muted Prime Day. Some sellers reported that they opted to run fewer Prime Day discounts this year out of concern that they might run out of stock.
FIGURE 1: UP BUT LAGGING. Amazon shares (AMZN—candlestick) recently climbed to new all-time highs, but then lost ground. They continue to lag behind the Nasdaq 100 (NDX—purple line) year-to-date. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Bipartisan Antitrust Concerns
Politicians in the U.S. and abroad are starting to become more verbal about the size and scope of the company, raising antitrust and other concerns.
Amazon Earnings and Options Data
For Q2 2021, analysts on average expect AMZN to report adjusted EPS of $12.30 billion, compared to $10.30 billion last year, according to third-party estimates. Revenue is seen at $115 billion, up 29.4% from a year earlier.
The options market has priced in an expected share price move of 3.8% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.
Looking at options expiring on July 30, call activity has been spread out with the highest activity at the 4000 strike. Puts have been active at the 3400, 3500, and 3600 strikes. The implied volatility sits at the 44th percentile as of Monday afternoon.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.
In June, a bipartisan group of U.S. House lawmakers introduced a package of antitrust reform proposals that could force AMZN and other Big Tech firms to overhaul their business practices. The bills would make it harder for dominant platforms to complete mergers and prohibit them from owning business lines that present clear conflicts of interest.
For AMZN, some of the loudest complaints about a monopoly come from its independent merchants who sell on AMZN’s digital mall. The accusations are that AMZN punishes merchants if they list their products for less on their own websites or other shopping sites. The result, claim merchants, is that AMZN effectively dictates what happens on shopping sites all over the internet.
In addition to being an ecommerce equivalent to a 10,000-pound gorilla, AMZN has also become a giant in technology, cloud computing, digital streaming, and artificial intelligence. Those business lines have added fuel to the arguments that AMZN has too much power over too many platforms, from books and thousands of products sold, to web services that host social media platforms.
AMZN’s power in so many places, however, is why some analysts remain positive about its future.
“With continued momentum through better-than-expected Q1 results, AMZN should further benefit from accelerated secular shifts in global e-commerce and cloud computing, as the COVID-19 lockdown drives structural shifts in consumer behavior and a likely ramp-up of AMZN’s free cash flow,” research firm CFRA said in a recent note.
The Q2 call will be the first to be led by CEO Andy Jassy, who has replaced Jeff Bezos as Amazon CEO. Bezos is now executive chairman.
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