Three big things to watch with Amazon earnings
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Amazon (NASDAQ:AMZN) heads into its earnings report on April 28 with investors jittery about a guidance surprise to the downside. Shares of Amazon have shed almost 10% over the last week to trail the broad market and tech sector indexes. Concerns over e-commerce spending decelerating in a tougher macro backdrop have added to the inflation and unionization anxiety already in the mix.
There are three areas of particular interest with the Amazon earnings report:
Pricing power: Amazon (AMZN) has offset some of its inflation costs with fuel surcharges to sellers on all product types and an increase in Prime subscriptions in March. While AMZN's pricing power has not generally been in question, increased competition from e-commerce players such as Walmart and Shopify is becoming a bigger factor. The streaming business could also be impacted by same type of pressures that cut into the Netflix growth story. The Amazon conference call will be closely watched for the cadence on how much leeway Amazon may have with pricing into a high-inflation period.
Operating income: Amazon (AMZN) is forecast to generate around $5B worth of operating income in Q1 with a profitable AWS business helping OI slide in near the top end of the company's guidance range of $3B to $6B. Some analysts think Amazon could surprise with Q2 guidance for operating income north of $7B. JPMorgan said the OI calculus for Amazon includes headwinds like ongoing wage inflation, ongoing supply chain issues, rising fuel prices, logistics investments, and media spend, while tailwinds include lower COVID-related spend, Prime price increase, seller fee increases, fuel surcharge, productivity and efficiency gains, and lower depreciation spend due to longer server life. Amazon's overall profit outside of OI will be impacted by the value of the Rivian Automotive stake at the end of the quarter.
Prime Day: Amazon (AMZN) may reveal that its annual Prime Day shopping event will take place in the third quarter, instead of the second quarter. A calendar change would have an impact on guidance for Q2 and could create a share price wobble until the analyst consensus marks are reset.
Amazon has missed revenue estimates in its last three earnings reports.