Amazon.com Inc. (AMZN) is slated to report third-quarter 2014 results on Oct 23. In the last reported quarter, Amazon recorded a negative earnings surprise of 107.69%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Amazon reported a loss of 27 cents in the second quarter, greater than the Zacks Consensus Estimate of a loss of 13 cents. Amazon reported revenues of $19.34 billion, down 2% sequentially but up 23.2% from the year-ago quarter. This was within the guidance range of $18.1-19.8 billion (down 4% sequentially but up 20.7% year over year at the mid-point) and in line with our expectations.
Amazon continues to invest in growth areas. In its previous earnings call, Amazon’s management disclosed plans for the third quarter- to add six new fulfillment centers and at least 15 new sortation centers. Sortation centers help Amazon to be closer to its customers so as to enable same-day delivery.
Amazons plans to invest about $100 million to acquire more video content in order to challenge Netflix’s (NFLX) and YouTube’s dominance in the video streaming market.
Amazon has also promised to invest $2 billion over the next few years in the Indian e-commerce market.
All these investments might affect Amazon’s margins in the short term.
Earnings Whispers
One estimate for the soon-to-be-reported quarter was revised downward in the last 7 days while there were no upward revisions. The Zacks Consensus Estimate for the quarter declined from a loss of 73 cents to a loss of 74 cents over the same time frame. For the current year, one estimate moved south over the last one week, shrinking the Zacks Consensus Estimate to loss of 4 cents.
Furthermore, our proven model does not conclusively show that Amazon is likely to beat earnings this quarter as it does not have the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP:The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at +5.41%. This is because the Most Accurate estimate of a loss of 70 cents is higher than the Zacks Consensus Estimate of a loss of 74 cents.
Zacks Rank:Amazon currently holds a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks That Warrant a Look
Other stocks worth considering in the technology sector that have both a positive earnings ESP and a favorable Zacks Rank are:
Apple (AAPL) with an Earnings ESP of +4.62% and a Zacks Rank #2 (Buy).
Facebook inc (FB) with an Earnings ESP of +6.25% and a Zacks Rank #2.
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