Fresh off of Prime Day, Amazon.com Inc. is scheduled to report second-quarter earnings after the closing bell on Thursday and JPMorgan analysts think it’s time to shift focus to revenue after a string of quarters with blockbuster profit.
“We believe the key driver of Amazon’s share price over the past ~12-to-18 months has been its significant profit outperformance (+300 basis points operating income margin expansion in 2018 with ~$1 billion-plus profit beats in four of the last five quarters), which has outweighed revenue deceleration concerns and ongoing regulatory and antitrust scrutiny,” wrote JPMorgan in a July note.
Amazon’s AMZN, -0.68% first-quarter earnings marked the fourth consecutive quarter that the e-commerce giant reported record profits.
“Looking forward, we expect the Amazon narrative to shift back more toward top-line growth in the second half of 2019, which in our view is important as Amazon remains a growth story and it’s too early for the company to be in harvest mode,” JPMorgan said.
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Analysts led by Doug Anmuth think one-day shipping could drive revenue acceleration though they would be “surprised” at any “significant” profit beat given the cost of cutting the Prime shipping time down from two days.
Amazon said it would spend $800 million in the second quarter to cut the Prime shipping time in half.
JPMorgan rates Amazon stock overweight with a $2,200 price target. Amazon is one of the group’s top picks, and occupies a space on its U.S. Analyst Focus List.
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Amazon has an average buy stock rating and average target price of $2,254.38, according to 47 analysts polled by FactSet.
Here’s what else to expect from Amazon’s earnings:
Earnings: FactSet expects Amazon to report earnings per share of $5.56, up from $5.07 last year.
Amazon has beaten FactSet EPS expectations for the last seven quarters.
Estimize, which crowdsources estimates from analysts, fund managers and academics, expects EPS of $6.15.
Revenue: Amazon is expected to report revenue of $62.48 billion, according to FactSet, up from $52.89 billion last year.
Amazon has beaten the FactSet revenue consensus the last two quarters.
Estimize is guiding for revenue of $63.19 billion.
Stock price: Amazon shares have rallied nearly 31% for 2019 to date, outpacing the S&P 500 SPX, -0.62% , which is up nearly 19%, and the Dow Jones Industrial Average DJIA, -0.25% , which is up 16.5% for the period.
What analysts are saying:
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-Amazon has set its sights on a new category.
Instinet analysts led by Simeon Siegel highlighted Amazon’s launch of a Professional Beauty Store in its June 24 note.
In March, the company launched its private-label skincare brand, Belei. And it has since gotten into the celebrity makeup game, making Lady Gaga’s brand Haus Laboratories available for preorder during the Prime Day event, ahead of its September launch. Haus Laboratories will be available on Amazon exclusively.
“It remains to be seen whether this is actually going to trigger change or whether it is simply another of Amazon’s many press releases – many products are already widely available online, and on Amazon specifically,” said Instinet in June. “That said, beauty has largely been outside of Amazon’s share grab thus far, so a decision to make a broader push into the category shouldn’t be ignored.”
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-Customers still don’t go to Amazon for the big stuff
KeyBanc Capital Market’s second-quarter consumer survey found that while customers will purchase consumer electronics, clothes and toys from Amazon, they still won’t buy big items like mattresses and appliances. Groceries are also on the list of things shoppers are least likely to buy.
Still, the survey found that nearly two-thirds of U.S. households have a Prime member, and younger shoppers are adopting Prime at high rates.
-Prime one-day delivery is going to drive sales
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Cowen analysts think the move from two-day shipping to one is going to make a big difference for Amazon sales, as much as $1.9 billion to $3.7 billion incremental U.S. gross merchandise volume (GMV) and ~$1.1 billion to $2.0 billion in incremental U.S. revenue in 2019.
“The impetus for the sensitivity is derived from 32% if U.S. Prime households suggesting they abandon units in their carts because they will not be delivered in a timely fashion per our proprietary survey data (which we haircut to ~22% based on ratio of total responses),” Cowen wrote.
Cowen rates Amazon stock outperform with a $2,500 price target.