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Amazon (AMZN) 3rd Quarter Earnings: What To Expect

Amazon earnings (Shutterstock photo)Amazon earnings (Shutterstock photo)

Retail giant Amazon (AMZN) is set to report third quarter fiscal 2017 earnings results after the closing bell Thursday.

In the three months that ended September, the Seattle-based company is expected to earn 3 cents per share on revenue of $42.05 billion. This compares to the year-ago quarter when the company earned 52 cents per share on $32.71 billion in revenue. For the full year, ending December, EPS is expected to be $3.63 per share, down from $4.90 per share a year ago, while full year revenue of $174.65 billion would rise 28.4% year over year.

Clearly, the e-commerce giant is still projected to put up impressive growth numbers. Notably, this is even though Amazon — now valued at close to $500 billion — is almost twice the size of Wal-Mart (WMT). That said, the company did miss its second quarter earnings estimates and signaled increased capital spending, which spooked investors into selling AMZN stock. The shares took a massive haircut as a result, falling from its all-time high of $1,083 to around $936.

While the shares have rebounded somewhat, the stock is still down 7% in three months, suggesting investors are anxious whether CEO Jeff Bezos — as he’s known to do — will decide if it’s time to mash the profit accelerator or continue to building out his vision, which ultimately means higher spending.

As such, on Thursday, analysts will also focus on the company’s profit margins, looking for any hint into Bezos’ thinking and whether the stock deserves its consensus price target of $1163, which calls for 20% rise from current levels.

Amazon continues to invest in ways to strengthen its logistics, while also expanding internationally. The company’s plans for Whole Foods acquisition will also be a hot topic. Amazon, which immediately cut prices of some selected grocery products, has wasted no time dictating food prices. The acquisition is a way for Amazon to broaden its Prime shopper base. How much of a contribution has Whole Foods made? Piper Jaffray analysts are modeling for $1.4 billion.

Beyond the top and bottom line numbers and the impact of Whole Foods, the Street will want to see how the company’s AWS (Amazon Web Services) cloud platform performs, which will dictate how much of a focus should be placed on the company’s capital spending. AWS boats more than half of Fortune 500 companies on the platform to run their businesses. It’s still the clear-cut leader in cloud market share and accounts for more than half of Amazon’s operating profits in 2016, up ten percentage points than 2015.

At the same time, however, competing cloud platforms from Microsoft (MSFT) and Alphabet (GOOG, GOOGL) are gaining traction. In the second quarter, AWS revenue rose 42% year over year to $4.1 billion, showing that it is still growing impressively. To the extent AWS, which grew 55% in the year-ago quarter, can grow at 40%-plus Thursday the Street will be pleased. This is because despite the growth deceleration, AWS is still growing twice as faster the retail segment, while producing operating margins that are ten times higher.

In other words, AWS carries tons of muscle. And if Amazon can flex more of it Thursday the stock should fly towards all-time highs, and in the process assuaging investor fears about any increased sending the company may wish to adopt to maintain its competitive edge.

At the time of publication, the author was long AMZN stock.

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