Please ensure Javascript is enabled for purposes of website accessibility Earnings: 3 Metrics to Watch

By Daniel Sparks - Updated Apr 21, 2019 at 11:46PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Did management lowball its fourth-quarter revenue forecast?

Mark your calendars: (AMZN 0.85%) recently put a date to its fourth-quarter earnings release. The company will report results for the quarter on Jan. 31. 

Ahead of the release, the company's third-quarter disappointment may still be fresh in some investors' minds. When Amazon reported its third-quarter earnings last October, revenue came in below expectations and management's fourth-quarter revenue guidance was lower than what many investors had anticipated. The news prompted a sell-off, with shares falling about 10% on the day after the earnings release.

Can Amazon's fourth-quarter results improve sentiment toward the stock? Ahead of the earnings release, here's a look at three metrics worth watching when the report goes live.

A smartphone displaying an graphic of a shopping cart

Image source: Getty Images.

1. Total revenue growth

It's hard not to make Amazon's revenue growth the primary focus when analyzing the company's current business trends. Revenue growth has decelerated significantly recently, falling from 39% year-over-year growth in Q2 to 29% growth in Q3. Worse yet, management is guiding for even slower growth in Q4.

Amazon guided for fourth-quarter revenue to be between $66.5 billion and $72.5 billion, representing just 10% to 20% year-over-year growth. 

Investors should look for revenue to come in toward the high end of its estimated range. A revenue growth rate at the bottom half of this range could spark fears about the company's growth potential.

2. Amazon Web Services revenue growth

Amazon's cloud computing business, Amazon Web Services (AWS) remains critical to the company's results. For instance, even though AWS accounted for just 12% of third-quarter revenue, it represented more than half of consolidated operating income. Since AWS is such a high-margin business, investors should look to see if the segment is keeping up its impressive growth. AWS revenue increased 46% year over year in Q3. Will the segment keep growing at such a strong rate in Q4?

3. Operating income

Finally, investors should check on operating income.

Thanks to a widening operating margin, operating income has been soaring recently. Highlighting the company's strong operating leverage, operating income for the nine months ending Sept. 30, 2018, was $8.6 billion, up from about $2.0 billion in the same period in 2017. This growth easily outpaced 36% year-over-year revenue growth over this same time frame.

The company has been benefiting from an expanding operating margin in its North America e-commerce business and outsize growth in AWS, which boasts a higher profit margin than its consolidated business. Will these factors persist and help operating income jump higher in Q4?

In Amazon's third-quarter update, management guided for fourth-quarter operating income to be between $2.1 billion and $3.6 billion. This compares to operating income of $2.1 billion in the fourth quarter of 2017.

Amazon reports its fourth-quarter results after market close on Thursday, Jan. 31.

Check out the latest Amazon earnings call transcript.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, Inc. Stock Quote, Inc.
$141.84 (0.85%) $1.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.