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Stock markets have rallied amid a wider improvement in global equities as risk appetite strengthened and confidence in the recovery returned. Ovel this week, equity markets have turned higher. Netflix and Spotify are leading the charge on the tech front, up 8% and 10% respectively following upgrades from Citi, while Tesla has risen 5% after being upgraded by Credit Suisse. Investors are looking ahead to mega-tech earnings reports this week, which will include Alphabet tonight, Meta Platform (FB) on Wednesday and Amazon on Thursday.
Amazon
Amazon is the company that is expected to experience another massive surprise in its Earnings reports. Amazon has a market capitalization of $1.7 trillion as of 23 of December 2021, following a more than 6% rise in 2021. Apple, Microsoft, Alphabet, Amazon, Tesla and Facebook added a combined $2.9 trillion to their collective market caps in 2021 as of Dec. 23, according to data from Factset.
The report due on Thursday will be for the fiscal Quarter ending December 2021, which according to Zacks Investment Research, is expected to experience a massive drop of its Earnings Per Share (EPS),compared to last year, at $3.88 from $14.09, which reflects a nearly 73% decline. In Q4, the company’s revenue is seen between $137.87-140 billion with the yearly change seen at approximately 9% . Amazon has beat revenue forecasts in the last nine quarters. The Q4 performance is expected to confirm the negative impact by global sypplu chain issues, while it could be a make-or-break moment for the e-commerce giant as markets reassess tech valuations.
The company’s earnings expected to present a solid boost from record-breaking sales during Black Friday and Cyber Monday and ingeneral the year end holidays.Also Amazons expansion of ecommerce, distribution network and the improvement of Prime Free One Day service, and robust grocery services (2-hour delivery service of natural and organic products ) are expected to have further boosted Amazon’s online retail business. The expansion of the Same-Day Delivery service to more cities in US, within a matter of 5 hours is anticipated to have been another positive factor for Q4 earnings. However Amazon proceeded with several expansions such as in the global footprint of Prime, Amazon Fresh grocery stores, 4-star stores and Amazon Go outlets, a robotics manufacturing facility in Westborough etc.
E-commerce section on the other hand, similarly to 2020 and 2021, should keep benefited from the remote working and travel resitricions. The continuation of stellar ecommerce, along with the strengthening of Prime Video’s content could contibuted to Q4 gains. The results of the other streaming giant , Netflix, showed that Amazon has strengthen its position in streaming sector and had upgraded into a dangerous competitor for Netflix.
Amazon Web Service, as the biggest part of Amazon’s income is derived from its cloud segment. Amazon Web Services (AWS) has posted a significant increase in both sales and operating income year after year, but has skyrocketed in 2021 more precisely due to the intoduction of AWS Private 5G – which enables enterprises to deploy and scale their 5G mobile network seamlessly, and AWS Amplify Studio — which enables web application user interface creation with minimal coding. Additionally, AWS announced several other services such as AWS IoT FleetWise, AWS IoT TwinMaker, three Amazon Elastic Compute Cloud, four storage services and capabilities, and six capabilities for Amazon SageMaker . Hence all the above have attracted business to Amazon and this reflects AWS as a key metric for investors on Thursday’s report.
However there are still some key risks for the company, as its expenses remain high according to the Amazon CEO , Andy Jassy which highilghts that :
In the fourth quarter, we expect to incur several billion dollars of additional costs in our consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs — all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season. It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.
In the equity market meanhwile, the shares of e-commerce and cloud computing giant are 13% down year to date, however they manage to hold above 20-month floor at $2700. Amazon’s share price rebounded this week from $2692 lows to $3006. The asset has been seen in a sharp decline since November’s peak along with all the high grwoth stocks due to the year end but also geopolitical uncertainty and centrak banks. It is currently retesting 3000 barrier, however only a break od 3200 could turn the outlook positive again. From technical persective the asset is driven by negative bias, given teh death gross of 50- and 200-day SMA, and the negatively configured RSI and MACD.
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Andria Pichidi
Market Analyst