April 02, 2020, Brandenburg, Kiekebusch: The Amazon logo (Amazon.com, Inc., listed in the USA) … [+]
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Amazon.com Inc. (AMZN) reported third quarter results on Oct. 29, slightly above analysts’ expectations. However, it can be a disappointment for Amazon’s Web Services business that its stock is down nearly 2% on the off-hours session.
The stock moved tremendously in 2020. The stock doesn’t come cheap, however, as the shares hit their highest level in years. The technical diagram was also not in great shape and gave results.
According to Refinitiv, analysts searched for third-quarter AWS revenues in a range of $ 11.2 billion to $ 11.9 billion, or $ 11.57 billion at mid-year. Revenue at $ 11.6 billion was better than mid-range. Still, it’s likely the disappointment that AWS didn’t come across the high-end that brought stocks down. Additionally, AWS posted revenue growth of less than 30% for the second straight quarter to 29%.
While the miss seems small on the surface, AWS is the high-margin part of Amazon’s business. It makes up most of Amazon’s bottom line. In the third quarter, Amazon achieved an operating profit of approximately 6.2 billion US dollars. AWS accounted for 57% of that operating income, or approximately $ 3.5 billion.
Additionally, the company expects operating income between $ 1 billion and $ 4.5 billion, or $ 2.7 billion in the middle. That’s less than operating income of roughly $ 3.9 billion a year ago, a decrease of over 29%.
The decline in operating income is surprising as the company expects revenue to range between $ 112 billion and $ 121 billion, or $ 116.5 billion in the middle of its roughly 33% growth. That’s a lot better than analysts’ estimates of $ 112.3 billion. However, the strong sales growth and declining operating income suggest the company is likely to spend a lot.
Technical diagram from Amazon
Meanwhile, the chart has a bearish setting with the potential for a double-top reversal pattern, marked by the two peaks around a price of $ 3,250. In fact, this could trigger a very sharp drop in stocks to potentially just $ 2,465. For this pattern to work, the stock would need to drop below tech support levels of around $ 2,900 first. In addition, the relative strength index suggests lower prices are ahead as it tends to trend lower, indicating that momentum is leaving the stock.
Value for money from Amazon
The stock isn’t cheap and is currently trading at a price-to-sales multiple near the high end of its 20-year range. This means that investors may continue to be very critical of the smallest problem that arises in the future.
Michael Kramer is a financial market strategist and portfolio manager of the Mott Capital Thematic Growth Portfolio.
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