Amazon(NASDAQ: AMZN) is scheduled to announce Q2 earnings results after the market closes on Thursday, July 28.
Latest Results
Amazon (AMZN) reported a Q1 loss of $3.8 billion, or $7.56 a share after it reported earnings of $15.79 a share a year ago. It is the first quarterly net loss for Amazon in exactly seven years, since the same period in 2015. Revenue increased to $116.44 billion from $108.52 billion in the same period a year ago.
Its shares fell 14.1% after posting the Q1 financial results, their biggest one-day percentage decline since July 26, 2006. The drop cost Amazon $206.41 billion in market capitalization.
Q2 Guidance
For Q2, Amazon executives guided for between an operating loss of $1 billion to a profit of $3 billion on net revenue of $116 billion to $121 billion.
Net sales are expected to be between $116.0 billion and $121.0 billion or to grow between 3% and 7% compared with Q2 in 2021.
It also announced that its annual Prime Day sale was in July.
3 Most Important Things to Watch
1. It Sets a Record With Prime Day Sales
It announced that Prime members purchased more than 300M items worldwide during Prime Day 2022 to make the event the single biggest Prime Day event in its history.
Amazon said small and medium-sized businesses did well, with sales growth in its store outpacing its retail business. Customers spent over $3B on more than 100M small business items included in the Support Small Businesses to Win Big sweepstakes.
Amazon Prime members worldwide purchased more than 100,000 items per minute during this year's Prime Day event. Some of the best-selling categories worldwide this Prime Day were Amazon Devices, Consumer Electronics, and Home.
2. Its M&A Random Walk Wanders Into Healthcare
Its $3.9 billion purchase of One Medical (ONEM), which operates doctors' offices in big American cities, fits with founder Jeff Bezos's love of messy experimentation - provided the market is big enough.
Like previous acquisitions, Amazon's third-biggest deal to date appears to follow a random walk. It purchased upscale grocer Whole Foods Market for $13.7 billion in 2017. An $8.5 billion acquisition of the MGM film studio closed in March.
Previous deals have had little obvious impact on the company's fortunes. Despite absorbing Whole Foods, Amazon's share of the U.S. grocery market was less than 3% last year. Meanwhile, the company unveiled its acquisition of MGM's content catalog for a huge premium when the streaming market was at its most exuberant.
The latest acquisition fits with Amazon's increasing interest in healthcare. The Seattle-based company has a big mail-order pharmacy business and sells lots of other healthcare supplies online. It provides telehealth and is opening doctors' offices in some big American cities. Paying a roughly 70% premium for San Francisco-based One Medical advances this strategy.
It's far from obvious that Amazon will succeed. One Medical's nice offices and minimal wait time appeal to patients, which explains why the company's revenue doubled in the first quarter. Yet, the firm loses money consistently and burns cash. And primary care is less expensive and annoying than hospitals and medical insurance. Hospitals account for about a third of medical spending, according to the U.S. government, swallowing 50% more than physician and clinical services.
3. It Acted to End EU Antitrust Investigations and Avoid Fine
Amazon has offered to halt online selling and marketing practices EU antitrust regulators regard as anti-competitive to try to end two investigations and avoid a possible hefty fine, ahead of EU rules that will target such methods from next year. Before that, it may risk a fine of up to 10% of its global turnover if found guilty of breaching EU rules.
This is not the first time Amazon has decided to head off EU sanctions. In 2017, it scrapped some clauses in its distribution deals with European e-book publishers, leading regulators to end their investigation without a fine.
In 2019, it overhauled its terms of service for third-party merchants and convinced the German antitrust agency to drop its seven-month investigation.
Analyst Opinions
UBS analyst Lloyd Walmsley cut Amazon’s price target to $167 from $209, he lowered the revenue estimate for 2022 to $523.2 billion from $526.7 billion and for 2023 to $598.7 billion from $615.9 billion. Though he saw the risk to the consensus revenue and operating income outlook near term, the current risk/reward looks compelling. He sees margins improving in 2023 as the company cuts fulfillment and logistics capacity, sees COVID costs continue to come out of the profit-and-loss, and benefits from a full year of the Prime price hikes and the fuel surcharges.
Deutsche Bank’s Lee Horowitz lowered Amazon’s price target to $155 from $174.He expected Q2 revenue will be $120 billion, the North America part will be $70 billion. Although Q3’s operating income stands to gain from abating inflationary headwinds related to labor, fuel, and excess capacity, gross margins will be affected by incremental discounting associated with ballooning inventory growth. He reduced 2023 operating income figures by 14%.
BofA reiterated a Buy rating but lowered the firm's price target from $188 to $168, without the effect of foreign exchange, they expected the Q2 financial result may meet or beat estimates, as BAC aggregated credit and debit card data points to 2pts of quarter-to-quarter US eCommerce growth, in-line with estimates. For Q3, Prime Day results and BAC data on Fourth of July Online spending point to a good start to the quarter, but they still see some risk to margin guide given gas price inflation and industry gross margin pressure, foreign exchange is a big Q3 headwind, but the good news is eCommerce industry comps ease materially going forward.