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Amazon (NASDAQ: AMZN) is expected to release its fourth quarter results on February 2. The e-commerce giant’s revenues have jumped since the start of the pandemic. Adding the holiday shopping season to an already high level of spending on its site may have boosted sales in the last quarter. Some analysts expect the company to report quarterly revenue in excess of $ 120 billion.
The remarkable revenue figure will likely make the headlines, but it won’t be the whole story. Here are three important things you’ll want to look at in Amazon’s fourth quarter earnings report.
Image source: Getty Images.
Amazon drives sales growth
First off, you’ll want to know the overall revenue. Three months ago, Amazon predicted it would generate between $ 112 billion and $ 121 billion in revenue in the fourth quarter. The wide range reflects the uncertainty surrounding the pandemic. Given that coronavirus cases have increased worldwide since Amazon gave its advice, it wouldn’t be surprising if its sales were higher than expected. Shareholders will want to see a growing proportion of its sales coming from the Amazon Web Services segment, which operates with higher profit margins than the rest of Amazon.
Second, you’ll want to look at Amazon’s reported operating profit. Once again, Amazon has guided investors towards a wide range of between $ 1 billion and $ 4.5 billion in operating profit. Three months ago, Amazon told investors it planned to spend around $ 4 billion on COVID-19 costs, which would restrict its profitability. In addition, the surge in e-commerce sales during the pandemic may have increased Amazon’s fulfillment costs during the holiday quarter. These sources of volatility make this earnings report all the more interesting for shareholders.
Finally, Amazon will likely inform investors of its Prime member totals. A year ago, the company revealed that it has over 150 million Prime members. Since Amazon’s popularity has increased further due to the pandemic, membership numbers have likely increased. Subscription service revenue, which includes fees associated with Prime subscriptions, increased 32.5% year-over-year in the third quarter and 29.8% in the first nine months of 2020. If Amazon announces that it has passed the 200 million Prime member mark, that alone could send the stock higher.
Ready for the vacation rush
It’s impressive that Amazon is handling the surge in customer orders so well. Yet it has not been able to deliver packages as quickly and reliably during the pandemic as in previous years. Still saying it wants to put the customer experience first, Amazon dramatically increased its capital investments in the first nine months of 2020 to $ 21.9 billion, from $ 8.7 billion in the same period. of 2019. Most of this expenditure has been devoted to improving its delivery capacities.
These investments have helped Amazon meet surging holiday demand with limited hiccups. Perhaps more importantly, it has put Amazon in a position to improve the customer experience far beyond the pandemic. It will be interesting to watch if management discusses improvements to the Amazon Prime program, such as more availability for one and two day shipping.
What this could mean for investors
On average, Wall Street analysts expect Amazon to report revenue of $ 119.7 billion and earnings per share of $ 7.19 for the fourth quarter: up 37% and 11% year over year, respectively. But given the uncertainty created by the pandemic, investors interested in creating a position on Amazon could reduce both upside and downside risk by splitting their purchase in half and buying half of their allocation before. the publication of the results and the other half after.
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