(Bloomberg) — The effects of Amazon.com Inc.’s one-day shipping push on profitability and sales will be watched closely when the e-commerce giant reports earnings on Thursday afternoon.
Amazon’s pledge to spend $800 million in the second quarter for faster delivery to its Prime members should help revenue growth rebound from a four-year low in the first quarter, but it’s also expected to hurt Amazon’s already slim operating margins.
Analysts, on average, project Amazon’s sales rose 18% to $62.46 billion in the quarter ended June 30, according to estimates compiled by Bloomberg. That’s compared with 17% growth in the prior quarter. Operating profit is estimated to be $3.71 billion, down from $4.42 billion in the first quarter.
“The program’s added convenience should drive top-line acceleration and improve stickiness for Prime members,” Canaccord Genuity analyst Michael Graham wrote in a research note.
Faster delivery is critical for Amazon as it faces increasing competition from traditional retailers like Walmart Inc. and Target Corp. and newer entrants such as Shopify Inc. On Wednesday, eBay Inc. unveiled a new shipping service to deliver orders more quickly and cheaply. Amazon shares are trading around $1,988 apiece, less than 3% from their September 2018 record, after a 32% rally in 2019.
Continued strength in Amazon’s higher margin businesses, such as cloud computing and advertising, is expected to cushion profits, according to Stifel.
Those businesses “should continue to be a tailwind for operating margin and allow the company to invest more heavily in its retail capabilities,” analyst Scott Devitt wrote in a research note.
Amazon’s third-quarter forecast should benefit from last week’s 48-hour Prime Day event, which surpassed sales from the previous Black Friday and Cyber Monday combined, according to the company. Amazon didn’t disclose more detailed information about the sale.
What Bloomberg Intelligence Says
Amazon.com’s record Prime Day will aid 3Q guidance, with margin expansion from advertising and cloud offsetting the spending pressure of one-day delivery. We see Amazon as a high-teens sales-growth story with faster profit gains as cloud, fulfillment by Amazon, a higher base of Prime users and the increasing push into ads incrementally add to economies of scale that the e-commerce giant has been experiencing over the past year.– Jitendra Waral and Charles Allen, analysts
Just the Numbers
2Q GAAP EPS estimate $5.56 (range $4.34 to $7.85)2Q operating income estimate $3.71 billion (range $3.17 billion to $4.96 billion)2Q net sales estimate $62.46 billion (range $60.97 billion to $63.76 billion)Amazon Web Services $8.50 billion, or 39% growth (Bloomberg MODL)3Q net sales estimate $67.22 billion (range $65.37 billion to $70.01 billion)3Q operating income estimate $4.34 billion (range $3.30 billion to $5.81 billion)
Data
51 buys, 1 hold, 1 sellAverage price target $2,268 Implied 1-day share move following earnings: 4.2%Shares rose after 7 of prior 12 earnings announcementsGAAP EPS beat estimates in 10 of past 12 quartersFor deeper estimates, see AMZN US Equity MODL
Timing
Earnings release expected July 25 after market closeConference call 5:30 p.m. New York time;website
(Updates share price and gains throughout.)
To contact the reporter on this story: Jeran Wittenstein in San Francisco at [email protected]
To contact the editors responsible for this story: Catherine Larkin at [email protected], Steven Fromm, Jeremy R. Cooke
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