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What to Watch When Amazon Reports Earnings

By Daniel Sparks - Jan 22, 2020 at 8:31AM

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Investors expect record revenue from the e-commerce giant's holiday quarter.

If you're an Amazon.com (AMZN -2.78%) shareholder or are interested in the stock, mark your calendar. The company plans to release its latest quarter results on Jan. 30.

The earnings report follows a period of underperformance for the stock. Shares have risen 10% over the past 12 months. This compares to the S&P 500's 25% gain over this same timeframe. Following this underwhelming performance, investors will be watching the earnings release closely to see if the e-commerce and cloud-computing giant fired on all cylinders during the important holiday period.

Here are some areas of Amazon's business worth checking on when the fourth-quarter update is released.

Boxes in an Amazon fulfillment center

Image source: Amazon.com.

Total revenue growth

Thanks to the seasonality of the holiday shopping season, the final quarter of the calendar year is always Amazon's biggest, and Q4 of 2019 almost certainly won't be an exception.

Management guided for revenue during the period to be between a record $80.0 billion to $86.5 billion, representing 11% to 20% year-over-year growth. The midpoint of this guidance range implies 15% growth.

Analysts, however, seem to be convinced that Amazon is lowballing its guidance range. On average, analysts expect revenue during the period to increase 18.7%. Notably, however, analysts' forecast isn't necessarily very bullish, as it implies a meaningful sequential deceleration. Amazon's third-quarter sales rose 24% year over year to $70 billion.

AWS revenue growth

Amazon's cloud computing business, Amazon Web Services (AWS), continues to become increasingly important to the company. AWS revenue in Q3 grew 35% year over year to nearly $9 billion. While this was only 13% of total revenue, the segment's higher operating margin compared to the rest of Amazon's business means AWS accounts for an outsize portion of operating income. AWS operating income during the period was $2.3 billion, or 56% of total operating income.

Given the importance of AWS to Amazon's growth prospects, investors should look for more 30%-plus growth from AWS in Q4.

Operating income

Finally, investors should look to see how Amazon's operating income fared in Q4. The company has been investing heavily in rolling out one-day shipping -- a move that could give revenue growth a boost but is requiring significant upfront investment. Will these investments weigh on profitability during the quarter?

Management guided for Amazon's fourth-quarter operating income to be between $1.2 billion and $2.9 billion, down from $3.8 billion in the fourth quarter of 2018.

Amazon is scheduled to report its fourth-quarter results after market close on Thursday, Jan. 30.

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