Stock of the week: Amazon

A massive week of US earnings awaits: 175 of the S&P 500 companies are scheduled to report first quarter results.

We’ll see reports from megacap firms like Microsoft, Google & Apple, plus results from Meta (Facebook) and a potential update from Twitter on Musk’s takeover talks.

Amazon’s report will be fascinating. This giant is about far more than the online shop everyone knows so well.

Taking a look at the chart, Amazon’s trading below the 20 & 200 day moving averages, having recently broken support at 2896. The stock is now down approximately 23% from the November 2021 high.

From a technical point of view, bears have the upper hand. But could that all change after the earnings report?

First up, let’s address the elephant in the room. Amazon’s 18% stake in Rivian. Last quarter, Amazon’s profits were somewhat ‘juiced’ by gains associated with their shares in the electric vehicle maker.

But Rivian has struggled in recent months with botched price hikes and supply chain issues. The stock is trading near all-time lows. This weak performance is likely to impact Amazon’s profitability, although it’s widely anticipated and easy enough to calculate the loss. No need to wait for Amazon to release their accounts.

However, the loss is almost certain to dominate the headlines: “Big company loses big money” is irresistible to headline writers.

What else will be going on?

Online Sales

In the most recent UK sales report, online sales fell noticeably.

Source: ING

Now this is no economic disaster. Consumer behaviour changed during the pandemic. Generally, consumers bought more goods and shopped online. Netflix benefitted. So did Amazon.

Now that trend looks to be on the turn as spending shifts more in favour of services. L’Oreals first quarter sales rose by 13.5% with chief executive Nicolas Hieronimus saying:

“We are not even close to experiencing a luxury down-turn, we see many people that are affluent and even the middle classes want to indulge,”

When the population was locked down, demand for cosmetics and beauty products fell. That the reverse is true now people are getting out and about more is another indicator that the trend in consumer behaviour has shifted.

Fuel Surcharge

Amazon introduced a fuel and inflation surcharge to combat rising prices. This will not come into effect until April 28th. Did Amazon get ahead of this before it had an impact on profitability?

Unionisation

Amazon just about won the union vote-off in Alabama. But in New York, workers are beginning to unionise. The JFK8 facility voted to join the Amazon Labour Union. On Monday, a Staten Island warehouse facility will vote too. Worker power something that’s set to continue? Will Amazon be forced into higher wages?

Amazon Web Services

AWS is a key profit driver for Amazon. In the last quarter, Amazon’s cloud sales growth hit 40%. Will this be repeated? Analysts will also have an eye on Prime and other subscriptions too.

Wall Street expects Amazon to earn $8.13 per share on revenue of $116.29 billion. The devil will be in the details.

Not investment advice. Past performance does not guarantee or predict future performance.