Amazon will post Q3 results this week, with analysts tipping a drop in profits on fading online shopping boom and supply chain bottlenecks.
Amazon earnings – what to expect
It’s tipped to be a relatively disappointing quarter for Amazon.com Inc (All Sessions), compared to the last year of results. According to numbers from Zack’s Investment Research published via NASDAQ.com, EPS ought to fall to $8.72, almost half of what they were in the previous two quarters, and down approximately 30% on annualised basis. Despite this, analysts are tipping fairly robust revenue growth across the business for the quarter, with sales remaining relatively strong, driven in large part by growth in the cloud services business. However, sales estimates have been downgraded recently by analysts, with the fall in EPS for the quarter attributable the re-shift in consumer behaviour away from online spending in the US, along with margin erosion due to the impacts of supply chain bottlenecks across the globe.
Source: NASDAQ, Zack's Investment Research
Amazon earnings – valuation, broker views and sentiment
Despite the expectation of weaker profits for Amazon this quarter and the risk of sustain headwinds in the future, the broker community remains very bullish on the company’s stock. Of the 52 brokers surveyed by Refinitiv, 50 hold either a “buy” or “strong buy” rating, while only 2 rate it a hold. Sentiment amongst IG’s client bases remains similarly bullish, with 97% of clients currently long, and only 3% short.
Amazon stock – technical analysis
Price action for Amazon shares is arguably reflecting the growing anxiety about the company’s profits and growth outlook. Though the long-term trend remains to the upside, price momentum is trending to the downwards, with the weekly RSI currently only just above the 50-level. Further to that, price is carving out a bearish descending triangle pattern right now, suggesting further downside to come if technical support at $3180 breaks. Such a move would open up a fall to key support around $3000 per share. On the other hand, a break out to the topside off this pattern would negate the bearish view on the stock, with resistance at $3560 the level to watch on the upside.
Source: IG charts
Kyle Rodda | Market Analyst, Australia
27 October 2021