What Amazon's Retail Estimates Are Telling Us

TimothyBarnes
2022-04-12

The leading online retailer in the world, Amazon.com, Inc.$Amazon.com(AMZN)$ needs no introduction. It single-handedly started a retail revolution in the U.S. that rapidly spread to the rest of the world. Amazon’s success in fact forced traditional retailers like Target TGT and Walmart WMT to go online because they were losing business.Some of the traditional retailers also partnered with Amazon and still others had to shut down.

Amazon’s success also encouraged new online-only retail operations like Etsy Inc ETSY and Shopify SHOP to start up.Amazon generates around 60% of its total revenue from the North America region and its diversification across Europe, Asia and other regions currently yields another 27%. The balance comes from its infrastructure-as-a-service business, AWS. We are concerned only with the first two segments here since we are taking a closer look at its retail operations.In the last four years, North America retail performed largely in line with analyst estimates. The exception was the pandemic-hit 2020, when Amazon missed analyst estimates by around 27%. Excluding 2020, this business recorded a 0.37% positive surprise.International revenues have been relatively disappointing.

Again excluding 2020 when Amazon missed by over 25%, the average surprise was -0.3%.Analysts likely turned overly optimistic in 2021, when things were really fluid with gradual vaccination and fresh waves of the infection leading to the waxing and waning in reopening spending. So the North America business posted negative surprises in the June and September quarters, followed by a 1.58% positive surprise in the holiday quarter.

The international business proved harder to forecast. After beating estimates by 8.07% in the March quarter, it missed estimates in the following three quarters by a respective 2.36%, 2.42% and 7.09%.This likely led analysts to initially lower estimates for the current year and also for 2023. But estimates have started moving up again in the last 30 days indicating improving sentiments. And so, the net change in estimates over the last 90 days was $2.76 (+5.6%) for 2022 and $2.01 (+2.7%) for 2023.

Conclusion

While Amazon is a leading player in the infrastructure segment, the bulk of its revenue still comes from the retail business, which is what makes this segment very important to study. The surprise history in the retail business shows that analysts are still unable to gauge the exact impact of the pandemic, particularly in the international business.So although estimates are rising again, there may still be risk to them, indicating that it is probably a good idea to hold current positions right now. This explains the #3 (Hold) rating on Amazon shares.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • xiaobaii
    2022-04-19
    xiaobaii
    like & comment please
  • Zilch
    2022-04-19
    Zilch
    👍 Thank you
  • Anh
    2022-04-18
    Anh
    Let's not forget the void that AWS can fill when Alibaba is out.
  • NevermindQ
    2022-04-18
    NevermindQ
    Amazin has steing business model, i belive thats future of online retail
  • V K
    2022-04-18
    V K
    wonderful
  • kkchang
    2022-04-19
    kkchang
    good job
Leave a comment
16