Amazon Q3 preview: Where next for the Amazon share price?

Amazon is expected to report a slowdown in growth and lower earnings as it comes up against tougher comparatives from when business boomed last year. We explain what to expect and consider how Amazon shares could react.

Amazon

When will Amazon release Q3 earnings?

Amazon is scheduled to release third quarter earnings after the markets close on Thursday October 28.

 

Amazon Q3 earnings preview: what to expect from the results

Amazon’s core ecommerce operation is expected to have struggled to keep up momentum in growth in the latest quarter as it comes up against tougher comparatives from last year, when business boomed as people shopped online during the pandemic.

However, the strength of its cloud computing unit, AWS, should help counter that slower growth by continuing to reap the rewards of businesses accelerating their digital transformations and shifting to the cloud.

Amazon has said it is targeting net sales of $106.0 billion to $112.0 billion in the third quarter. Wall Street is expecting net sales to be at the top-end of that guidance range at $111.6 billion, which would be up from $96.1 billion the year before.

Below is a breakdown of analyst revenue expectations for the third quarter compared to what was delivered the year before. Notably, Amazon reports its topline in two ways. The first is split by physical products and services such as its subscription and cloud services:

  • Net product sales: $56.4 billion versus $52.8 billion (+6.9%)
  • Net service sales: $54.8 billion versus $43.4 billion (+26%)

Or they can be analysed by geographical segment with AWS split out:

  • North America: $66.4 billion versus $59.4 billion (+12%)
  • International: $29.4 billion versus $25.2 billion (+17%)
  • AWS: $15.4 billion versus $11.6 billion (+33%)

Amazon has said it is targeting operating income of $2.5 billion to $6.0 billion in the quarter and analysts forecast this will come in at $5.5 billion and fall from the $6.2 billion booked last year. Adding further colour to expectations, analysts anticipate net income will fall to $4.6 billion from $6.3 billion last year, with the per share measure expected to fall to $8.91 from $12.37.

One reason markets are expecting earnings to fall is the pressure being applied to supply chains, which is likely to have pushed fulfilment costs up as it deals with rising shipping prices, supply constraints, labour shortages and higher take-rates by the third-party sellers. Meanwhile, AWS is expected to post an operating margin of over 30% in the third quarter after it slipped closer to 28% in the second, which would allow the higher-margin business to pick-up some of the slack from the core ecommerce operation.

The outlook, and how the supply chain pressure features within it, will be key in deciding how markets respond to the update this week. There is a chance that the supply crunch will not be as bad as feared in the third quarter, but the issue looks highly likely to be a bigger problem in the final quarter – which is the key holiday shopping season.

 

Where next for the Amazon share price?

The Amazon share price has been remarkably unremarkable across the year. The share price has been range bound capped on the lower side by $3100 and on the upper side by $3500 for much of the past six months. The push above this upper limit in July to an all-time high was short lived. 

The price currently trades in the middle of the trading range. The moving averages are relatively flat and the RSI neutral.  

Buyers will want to see a close above $3500 for a sense that there could be more upside to come.  

Meanwhile sellers will be looking for a meaningful move below $3100 to target $3000 and below. 

Where next for the Amazon share price?

 

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