Amazon.com (NASDAQ:AMZN) recently firmed up the date for its next earnings report -- and it's just around the corner. The e-commerce giant will deliver its second-quarter results after the close on July 26, and with shares up an incredible 82% over the past 12 months -- 22% in the past three months alone -- investors have high expectations.
The company has been firing on all cylinders recently. In its first quarter, sales and operating income increased 43% and 92% year over year, respectively -- results that blew past both analysts' consensus estimates and management's own forecast. Next week, investors will be looking for similarly impressive growth, as well as strong guidance.
Here's an overview of three important areas to focus on when Amazon's Q2 report arrives.
Amazon has achieved mind-boggling sales growth recently, and investors will certainly be watching to see if it's keeping up the pace. After posting year-over-year sales growth of 43% in Q1, management guided for Q2 sales to be between $51 billion and $54 billion, giving it a forecast growth range of 34% to 42% year over year.
Considering that over the past year, the company's sales results have consistently either come in at the top end of management's sales guidance range or exceeded it, it's no surprise analysts' consensus estimate for Amazon's Q2 sales is firmly in the upper quarter of that range, at $53.4 billion. If that figure is accurate, it would equal about 41% year-over-year growth.
Of course, given Amazon stock's sharp run-up recently, investors will be hoping management guides for another quarter of big growth. At this point, the company needs to grow into its pricier valuation. Thanks in part to its 82% share price rise over the past 12 months, Amazon's price-to-sales ratio is now 4.7, versus about 3.3 a year ago.
On the other hand, given Amazon's increasingly tough comparable periods and the fact that growth at this level simply isn't sustainable over the long haul, investors should expect some deceleration. I'll be looking for Amazon to guide for Q3 sales in the range of $57 billion to $59 billion, or 30% to 35% growth. While this would be a notable deceleration, it would still be rapid enough growth that investors could be optimistic about Amazon's long-term trajectory.
One area where Amazon has been outperforming expectations even more than it has been on revenue is operating income. In Q1, for instance, the company posted operating income of $1.9 billion -- far exceeding the $300 million to $1 billion range management had guided for. That followed a Q4 2017 result of $2.1 billion of operating income that crushed the guidance range of $300 million to $1.65 billion.
For Q2, management has guided for operating income to be between $1.1 billion and $1.9 billion, but just because it has been topping those guidance ranges recently, investors shouldn't assume a similar beat is in the cards this time around. Amazon has made it clear that it has aggressive plans to invest in growth, and those could weigh on profitability in the near term. Indeed, during the Q1 earnings call, CFO Brian Olsavsky specifically noted plans for bigger investments in video content, hiring of software engineers, and Prime Day preparations. In addition, though Amazon can deliver outsize operating-income growth when revenues are strong, it can be narrower than expected when sales land at the low end of the company's forecasts.
Amazon's guidance for Q2 operating income is actually the most reasonable indicator for what investors should expect -- despite how wide the range is.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.