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Earnings Outlook: Amazon earnings preview: As shoppers increasingly head out of their homes, e-commerce sales could slow

A COVID-19 resurgence could be a tailwind for Amazon, say Benchmark analysts. Read More...

With more consumers heading back to restaurants, events and vacation destinations, analysts are concerned that Amazon.com Inc.’s earnings report will reflect an e-commerce slowdown.

Amazon AMZN, +1.15% is scheduled to announce second-quarter earnings on Thursday after the closing bell.

“By now, we think it’s understood that overall e-commerce sales decelerated in 2Q,” wrote UBS analysts led by Michael Lasser, citing the latest Census data showing a 12% increase in second-quarter non-store sales (which is mostly comprised on e-commerce). E-commerce sales growth was 26% the previous four quarters.

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“There’s probably several reasons for the change in trend, including the reopening of stores and a shift to leisure activities and travel (i.e. there’s less need to order online when on vacation).”

UBS also suggests that heading back to the office could reduce the number of shoppers clicking to buy.

“This means less time at home, reducing the need to order some products online e.g. groceries.”

UBS rates Amazon stock buy with a $4,350 price target.

Consumer Intelligence Research Partners (CIRP) data indicates that Amazon’s focus on adding to its more than 200 million Prime members around the world is yielding results.

“Beyond meeting the obvious and enormous challenge of scaling up to accommodate increased demand, Amazon mostly convinced shoppers to join Prime,” said Josh Lowitz, CIRP partner and co-founder in a statement.

“The well-developed Prime membership model worked, with Amazon gaining about 30 million new individual Prime shoppers in the U.S. in the past 12 months.”

However, Zack’s notes that shares of both Amazon and Apple Inc. AAPL, +0.48% have lagged behind other tech stocks.

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“It appears the market sees these two leaders’ pandemic outperformance being at the expense of future periods. This view likely explains why the market effectively shrugged standout results from both these players back in April,” Sheraz Mian wrote in a report published Friday.

Still, Benchmark analysts are upbeat, though it’s for a terrible reason.

“Shares have just started to sneak out of an almost 12-month trading range, likely aided, unfortunately, by increasing concerns of a pandemic resurgence,” Daniel Kurnos wrote.

Benchmark rates Amazon stock buy with a $4,400 price target

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Amazon has an average buy stock rating and average target price of $3,690.02, according to 50 analysts polled by FactSet.

Here’s more of what you should know about Amazon before it reports second-quarter earnings:

Earnings: The FactSet consensus is for earnings per share of $12.28, up from 10.30 last year.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, forecasts EPS of $15.17.

Amazon has beat the FactSet EPS consensus the last four quarters.

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Revenue: The FactSet consensus is for revenue of $115.37 billion, up from $88.91 billion last year.

Estimize forecasts revenue of $118.07 billion.

Amazon has beat the FactSet revenue consensus the last 10 quarters.

Stock price: Amazon shares have gained 13.5% for the year to date. The Amplify Online Retail ETF IBUY, -0.79% has gained 8.9%. And the S&P 500 index SPX, +0.08% is up 17.5% for the period.

Other items:

-Prime Day may have been lackluster. UBS analysts say this year’s Prime Day event, which took place on June 21 and 22, was “underwhelming.”

However other analyst groups are more upbeat.

“[W]e think a strong Prime Day, early back-to-school season with potential shortages, and no apparent slowdown in consumer spending could contribute to an upside surprise and better-than-expected 3Q guidance,” wrote Benchmark.

Truist Securities uses data from the Adobe Digital Economy Index, which showed a 6.1% Prime Day sales increase to $11 billion, and other data points to determine the event was “successful.”

And Wedbush analysts think Amazon Web Services will drive revenue growth into the future.

“We believe that Amazon Web Services will continue to grow at a high clip this year,
up nearly 29% year-over-year, driven by a secular shift toward cloud storage, partnership agreements, and international expansion,” analysts wrote.

Wedbush rates Amazon stock outperform with a $4,300 price target.

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-Amazon will continue to invest in video content following the MGM announcement. Amazon announced in May that it would acquire movie studio MGM, an $8.45 billion deal that is under Federal Trade Commission review.

Truist analysts say the addition of MGM content, which includes the James Bond films, along with an $11 billion investment in Prime Video and Music content, as well as investments in logistics and fulfillment are part of Amazon’s efforts to beef up its Prime offerings.

“We view all these investments as evidence of Amazon’s customer-obsessive ethos, as the company continues to pour money into additional services to make Prime
membership that much more valuable, which should increase engagement, lower churn, extend long-term value and reinforce Amazon’s scale advantages over time,” Truist wrote.

Truist rates Amazon stock buy with a $4,000 price target.

Credit Suisse analysts say investment activity will also turn back toward last-mile delivery.

“We believe the output of this stepped up investment activity will be the resumption of one-day Prime delivery expansion (which reached just shy of 50% prior to pandemic capacity headwinds,” analysts wrote.

“As the company typically deploys new fulfillment assets during 3Q heading into the holidays, we believe it will not be too long before it will announce a faster delivery option.”

Credit Suisse rates Amazon stock outperform with a $4,850 price target.

-Amazon maintains advertising momentum. Truist analysts also note that Amazon’s advertising business has grown 40% to 50% over the last several quarters.

“Our conversations with marketers indicate that sellers continue to lean in hard on Amazon, given the direct response and high intent nature of the platform,” analysts said.

“Additionally, as a high margin business, strong advertising growth is a material source of operating leverage, which offsets higher shipping and fulfillment costs.”

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