What To Look For In Amazon's Q3 Report

Amazon.com, Inc. AMZN, the disruptor in the retail space, is soon to chime in its fiscal-year third-quarter results.

Amazon is scheduled to report results after Thursday's market close.

Great Expectations

Analysts, on average, expect the company to report a steep decline in earnings per share at 3 cents, down from 52 cents in the year-ago period. That said, revenues are expected to climb 28.60 percent year over year to $42.05 billion.

Consensus expectation have been bumped up from 1 cent to 3 cents over the last month.

Loop Capital Markets' Anthony Chukumba said he expects above-consensus earnings of 9 cents for the third quarter, premised on more optimistic top-line and profitability expectations. The analyst models 27-percent sales growth, with 40-percent growth in AWS and 31.4-percent growth in the North American business.

Loop Capital Markets is anticipating an across-the-board operating profit drop, a 300-basis-point drop in AWS, 100-basis-point decline each in North American and International businesses.

Along with the second-quarter release, the company issued guidance for the third quarter, calling for net sales of $39.25 billion to $41.75 billion.

How Amazon Fared In Q2

In the second quarter, the Seattle-based company reported 25-percent sales growth to $38 billion, with 65 percent coming from product and the remaining from service sales.

Gross margin contracted to 61.7 percent from 63 percent.

Roughly 59 percent of the total net sales came from North America, 30 percent from international operations and 11 percent from AWS. Meanwhile, the North American business generated operating profit of $436 million and the AWS $916 million, while the international operation bled, posting an operating loss of $724 million.

See also: Contrarian: Amazon Is One Of The Weakest Retailers There Is

Some Key Developments In Q3

Amazon completed its acquisition of Whole Foods on Aug. 28. The company announced, coinciding with the closure, it will start offering lower prices on a selection of grocery staples across its stores.

The company also announced a partnership with Microsoft Corporation MSFT to link up its Alexa digital assistant with the latter's Cortana.

Focus Areas

Chukumba feels investors are likely to focus on the following:

• North American growth and profitability.
• Growth and profitability at AWS.
• Update on Whole Foods integration, specifically whether its financial results will be reported separately.
• Update on issues at Amazon Studios.

The company had reported operating margin contraction of 210 basis points in the North American business and 260 basis points from AWS in the second quarter.

Forward Outlook

For the fourth quarter, which encompasses the key holiday selling season, analysts, on average, expect earnings of $1.69 per share on revenues of $58.85 billion, up 34.60 percent. Meanwhile, consensus estimates call for earnings of $3.63 per share for the fiscal-year 2017 versus $4.90 per share in 2016 and revenues of $174.65 billion, representing a 28.40-percent increase.

Meanwhile, Loop Capital Markets estimates earnings per share of $4.22 for 2017.

Stock Take

Amazon shares have gained 31.49 percent in the year-to-date period and have risen a more modest 1.86 since the start of the third quarter. This is in comparison with the 7.96-percent gain by the NASDAQ Composite and 6.26-percent advance by the S&P 500.

Loop Capital Markets has a Buy rating and a $1,200 price target for the shares of Amazon. Based on Yahoo database, the average analyst recommendation for the company is a Buy. The average analysts' price target is $1,163.10.

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