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Will Prime & AWS Momentum Aid Amazon's (AMZN) Q2 Earnings?

Zacks Equity Research

Amazon AMZN is scheduled to report second-quarter 2019 earnings on Jul 25.

Notably, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 60.25%.

In the last reported quarter, Amazon’s earnings of $7.09 per share comfortably surpassed the Zacks Consensus Estimate, the positive earnings surprise being 53.8%. The figure also soared 116.8% year over year.

Past-Quarter Performance

Net sales of $59.70 billion outpaced the Zacks Consensus Estimate of $59.69 billion. Further, the figure surged 17% from the year-ago quarter and was within management’s guided range of $56 billion to $60 billion.

Amazon’s solid Prime momentum on the back of its grocery initiatives, delivery services and strengthening content portfolio drove contributed well. Further, expanding Amazon Web Services’ (AWS) offerings and growing adoption rate drove the results further.

Q2 Estimates

For the second quarter, Amazon expects net sales between $59.5 billion and $63.5 billion, suggesting an improvement in the range of 13-20% from the year-ago reported figure. The Zacks Consensus Estimate is pegged at $62.51 billion.

Further, the consensus mark for second-quarter 2019 earnings stands at $5.29, unchanged for the past seven days.

Let’s see how things are shaping up prior to this announcement.

Prime, International Expansion & Retail Initiatives to Aid Q2

Prime enabled services and benefits are aiding Amazon’s grocery retail initiatives.

During the to-be-reported quarter, the company rolled out AmazonFresh, which enables Prime members to enjoy delivery of daily essential goods and grocery items ranging from meats to fresh produce within an hour or two, in Las Vegas.

Further, Amazon introduced its two-hour delivery service of natural and organic products such as meat and seafood, fresh produce and staples from Whole Foods Market via Prime Now to additional cities of the United States — Lexington, Little Rock, Charlottesville, Asheville, Columbia, Manchester, Savannah, Naples and Mobile.

The service was also extended to the cities of Chattanooga, Knoxville, Destin, Tallahassee, Greensboro, Wilmington, Allentown, Fort Collins, Huntsville, Montgomery, Jackson, Palm Desert and Portland during the second quarter.

Additionally, the company unveiled Prime services in the United Arab Emirates (UAE) in order to strengthen e-commerce operation in the country. Notably, the company launched Amazon.ae, its e-commerce site for UAE in May 2019.

We believe Prime’s strengthening grocery services, expanding international footprint and original content portfolio is likely to aid its adoption rate in the quarter under review, which in turn will aid results.

In context of international expansion, Amazon joined forces with British clothing store, Next plc, to offer parcel collection option to U.K. customers. Notably, it opened new Internet equipped counters at Next stores from where customers can collect their packaged parcels.

Further, the company’s growing physical presence primarily backed by rapidly expanding cashierless stores, Amazon Go, continues to enhance its influence in the retail sector.

During the to-be-reported quarter, the company rolled out its second Amazon Go in New York.

Additionally, it unveiled Amazon Professional Beauty Store which will offer beauty supplies and professional salon products in a bid to expand presence in the beauty retail market.

The abovementioned strong endeavors are likely to aid the upcoming quarterly results.

Further, these initiatives are helping Amazon to strengthen its competitive position against retailers like Walmart WMT, Target TGT and Ulta Beauty ULTA, to name a few.

Amazon.com, Inc. Price and EPS Surprise

 

Amazon.com, Inc. Price and EPS Surprise

Amazon.com, Inc. price-eps-surprise | Amazon.com, Inc. Quote

Strengthening AWS Services

In the quarter under review, AWS announced the general availability of several services like Amazon Textract, AWS Ground Station, Amazon Managed Streaming for Apache Kafka (Amazon MSK) and Amazon Managed Blockchain, to name a few.

Notably, expanding services portfolio is aiding AWS in gaining traction in the cloud market by winning customers.

We believe strengthening customer base is likely to drive AWS revenues, which in turn will aid Amazon’s top line in the to-be-reported quarter.

Devices and Robots Gaining Traction

During the second-quarter 2019, Amazon launched Echo Show 5 which is an upgrade to the Echo Show series and expansion of its Echo devices family. This move has strengthened the company’s smart speaker offerings.

It also unveiled Fire 7 Kids Edition, a cutting-edge tablet for children with one-year subscription to Amazon FreeTime Unlimited.

Additionally, Amazon introduced two new kinds of robots — Xanthus and Pegasus for its fulfillment centers. These robots are aiding in the automation of warehouses, which in turn will boost its retail and e-commerce strength. These factors will aid the upcoming quarterly results.

Currently, Amazon sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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