What Can You Expect from Amazon Stock in Q3?

The earnings began last week and big tech will be reporting quarterly results in the next couple of days. Tech giants such as Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), and Facebook (NASDAQ: FB) will all be releasing September quarter results on October 29 after the market closes.

Here’s a quick preview of what we can expect from the world’s largest online retailer in Q3.

Amazon forecast to grow sales by 32.2% in Q3

Wall Street expects Amazon to grow sales by 32.2% to $92.5 billion while earnings growth is forecast at 71.4% with a net income of $7.25 per share. In the second quarter, the e-commerce heavyweight crushed market estimates as sales rose 40% to a record high of $88.9 billion. Comparatively, its net income doubled to $5.2 billion from $2.6 billion in the prior-year period.

Amazon has beaten analyst earnings estimates in two of the last four quarters. However, in Q2, it reported EPS of $10.3 which was 600% above forecasts of $1.46. We can see that even though revenue and earnings growth will decelerate in Q3 on a sequential basis, the company's financial figures remain impressive.

Investors will closely be watching the company’s guidance for Q4 as well. Wall Street forecasts December quarter sales to grow by 27.4% to $111.4 billion while earnings might increase by 37% year-over-year.

AMZN stock has crushed markets in the last decade

Whether Amazon meets or beats estimates in Q3 should not concern long-term investors. The company has been one of the top performers for investors in the last decade and returned a staggering 1,860% since October 2010, easily outpacing the S&P 500. So, a $1,000 investment in Amazon stock 10 years back would have returned close to $20,000 today.

Even the COVID-19 pandemic has acted as a major tailwind for Amazon and e-commerce peers as the coronavirus accelerated the shift towards online shopping. Amazon is also the largest public cloud company and the third-largest digital advertising platform.

Amazon accounts for about 40% of online sales in the U.S. It has a huge presence in the streaming space with Amazon Prime and Twitch. The company’s leadership position and huge economic moat make it one of the top bets for the upcoming decade and perhaps even more.

While Amazon’s cloud-based business or Amazon Web Services (AWS) accounted for 12.8% of total sales in the first six months of 2020, it generated 65% of total profits for the company in this period. The high-margin public cloud business continues to outpace Amazon’s retail business and this will help it expand bottom-line over the long-term.

Analysts in fact expect AMZN to triple operating cash flows between 2019 and 2023 making it a top bet for growth investors.

The verdict

Amazon has a robust growth profile that commands a premium valuation. AMZN stock has a market cap of $1.65 trillion indicating a market cap to sales multiple of 4.5x. Further, its forward price to earnings multiple stands at 103.5x which might look sky-high but the company is expected to grow earnings at an annual rate of 36% in the next five years.

Analysts tracking Amazon remain bullish on the stock. They have an average 12-month average target price of $3,725 on AMZN stock, which indicates an upside potential of 13.4%.

Related: Is Netflix Stock a Buy Post 10% Fall Since Q3 Earnings?

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