21 Oct

Will Amazon Stock Break Out on Its Earnings?

WRITTEN BY Maitali Ramkumar

Amazon (AMZN) stock has been tanking since its second-quarter earnings results. The stock has fallen 12.2% since July 25, its previous earnings release. This performance has affected its 50-day moving average, which has fallen 6.0%. Amazon’s 50-day moving average has broken below its 200-day moving average.

Amazon stock is plunging

Amazon stock has been tumbling in the past few months due to a series of adverse events. In the second quarter, its earnings fell short of Wall Street analysts’ expectations. The trade war between the US and China, along with recession fears, further affected the stock. To add to its woes, politicians have been criticizing Amazon on various fronts. Reportedly, Amazon is also facing an antitrust investigation.

Amazon’s 50-day moving average now stands 0.9% below its 200-day moving average. At the time of its second-quarter earnings, Amazon’s 50-day moving average stood 8.5% above its 200-day moving average. While this isn’t a good technical sign, there’s a silver lining.

There’s good news for Amazon stock

Amazon stock, which fell far below its 50-day moving average after its previous earnings, is now trading just 1.2% below its 50-day moving average. This development means that any positive news could lift the stock, which could break above its 50-day moving average—a technically positive sign. While analysts expect Amazon’s earnings to fall in the third quarter, better-than-expected earnings could propel its stock. Higher next-quarter guidance could also help.

Wall Street analysts expect Amazon’s revenue to rise 22% YoY (year-over-year) to $68.8 billion, while they expect its EPS to fall 20% YoY to $4.6 in the third quarter of 2019. If Amazon’s financials exceed analysts’ estimates, it could boost the stock. This could lead to Amazon stock breaking above its 50-day moving average. Plus, AMZN’s 50-day moving average could cross over its 200-day moving average, which would be much-awaited good news for the stock.

Amazon stock: Earnings outlook

Amazon expects its third-quarter revenue to rise 17%–24% YoY. However, the company expects its operating earnings to fall. It expects its operating profit to dip from $3.7 billion in the third quarter of 2018 to $2.1 billion–$3.1 billion in the third quarter of 2019. The fall in this earnings expectation is the result of the company’s increasing transportation costs.

Amazon is focusing on faster one-day shipments, which is escalating its costs and hitting its profits. If Amazon continues to see this cost escalation in the fourth quarter, then it could post lower earnings guidance for the next quarter.

However, a few quarters down the line, when the company’s transport network is fully developed, its costs should come down. It will then have an expedited delivery network with reducing costs, which should boost its profits.

Plus, the company’s Cloud Computing business segment has been growing aggressively, which is expected to bring earnings expansion. Analysts may be confident in Amazon stock due to its long-term outlook.

Peers’ moving averages

A few days ago, Facebook (FB) stock crossed over its 50-day moving average. It now stands 1.0% above its 50-day moving average. Also, FB’s 50-day moving average stands 3.2% above its 200-day moving average. Wall Street analysts expect Facebook’s earnings to rise 8% YoY in its upcoming results.

Analysts also expect Microsoft’s (MSFT) earnings to rise 9% YoY in its next earnings release. MSFT is trading just 0.2% below its 50-day moving average. MSFT’s 50-day moving average stands 9.3% above its 200-day moving average. To learn more about the company’s earnings expectations, read Microsoft: Why Investors Expect Upbeat Earnings.

Apple (AAPL) and Alphabet (GOOGL) (GOOG) stocks are also trading above their 50-day moving averages. AAPL and GOOGL stand 8.7% and 3.1% above their 50-day moving averages, respectively. Also, their 50-day moving averages stand 11.8% and 3.8% above their 200-day moving averages, respectively.

Analysts expect Apple’s and Google’s earnings to fall 3% and 5% YoY, respectively, in their upcoming results.

To learn more about the long-term earnings outlooks of these tech companies, check out AMZN, FB, AAPL, MSFT, GOOGL: Tech Stock Forecasts.

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