To The Moon

$Amazon.com(AMZN)$ is scheduled to release its Q3 2023 earnings result on 26 Oct after market close.

Market is expecting consensus estimate of $0.59 compared to $0.28 a year ago same quarter period.

Amazon (AMZN) Past EPS Estimate (Forecast vs Actual)

Amazon Q3 guidance predicts optimistic revenue and profit numbers, but potential challenges include higher gasoline prices and falling inflation.

What would remain to be seen is the Q4 guidance as it remains an unpredictable factor that will steer the market's response. From my perspective, the existing expectations may be somewhat elevated.

Amazon (AMZN) Historical Moves Ahead of Earnings

AMZN historically moved higher heading into earnings more often than not. On average, the stock gained 2.8% for the 2 week period before earnings (based on the last 12 quarters of data).

But if we look at how Amazon have been trading over the past 4 trading days, we saw that Amazon has actually lose more than 3%.

Amazon (AMZN) Historical Stock Price Reaction to Earnings

AMZN shares have moved lower in the immediate aftermath of earnings 9 out of 12 previous reports. On average the stock moved down -1.5% in the first day of trading after the company reported earnings.

We could be looking at a drop of around -0.5% to -1.5% because of an uncertain Q3 earnings which could be affected by rising inflation and energy prices.

Amazon Q4 guidance is also questionable as there might be less profits coming from its e-commerce business.

Amazon (AMZN) Option Open Interest

AMZN has a total open interest of 373,186 contracts and a put-call ratio of 0.53 for options expiring Oct 27, 2023 (2 days).

If we look at the call option with strike price 140 with an open interest of 30,872, with the price trading at around $125 at time of writing.

We are looking at a call option has zero intrinsic value.

Amazon (AMZN) Option Implied Move

If we looked at the Option Implied Move, for 23 Oct and 24 Oct, the actual move is within range. Based on 4 quarter historical average, the option valuation is undervalued.

But the options market overestimated AMZN stocks earnings move 50%of the time in the last 12 quarters.

The predicted move after earnings announcement was ±6.2% on average vs an average of the actual earnings moves of 6.9% (in absolute terms).

This shows you that AMZN tended to be more volatile than the options market predicted for the earnings stock price reaction.

AMZN Earnings Implied Volatility Crush

AMZN's last earnings implied volatility (IV30) going into earnings was 42.0.

The last time AMZN released earnings, the implied volatility dropped to 29.7, resulting in an implied volume crush of 29%.

5 days after earnings, the 30 day IV was 27.9. You can compare how AMZN implied volatility changed around earnings for the last 12 quarters.

Average Implied Volatility Crush For AMZN Earnings: 21%

Average 30 Day Implied Volatility 1 Day Before Earnings: 43.4

Average AMZN 30 Day IV for the Day of Earnings: 33.4

Average 30 Day Implied Volatility 5 Days After Earnings: 32.3

Summary

Market is expecting Amazon to repeat the Q2 earnings, but these factors would be something that will hit Amazon and situations is not improving.

Higher gasoline prices which might not go down in near term because of the recent conflict will increase Amazon’s delivery costs because Amazon has a large network of trucks, vans, and airplanes to deliver its products to customers.

Another factor is the falling inflation, this mean prices of goods will likely fall. If we look at how consumer spending pattern, they would wait to buy goods if there is no urgency as prices would likely to fall more.

So if consumer spending reduce, Amazon’s business model of selling goods at higher price to make a profit would greatly affect their revenue.

But there is not all negative headwinds, Amazon forecast on its revenue might benefit from the positive impact of the exchange rate differential.

Appreciate if you could share your thoughts in the comment section whether you think Amazon would post a lower-than-expected revenue because of rising operating cost and also the impact of lesser consumer spending.

@TigerStars @Daily_Discussion @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.