What to watch in Amazon earnings report
Amazon (AMZN) is scheduled to report results of its third fiscal quarter after the market close on Thursday, October 26, with a conference call scheduled for 5:30 pm ET.
What to watch for:
1. ONLINE RETAIL
In his preview of Amazon’s Q3 report, DA Davidson analyst Tom #Forte said that particular attention will be paid to the company’s “co-opetition” efforts with Google (GOOG).
Forte noted that the Google challenge in particular is becoming increasingly important and “problematic” for Amazon, as Google’s search algorithm changes made in May resulted in prioritizing local stores with physical inventory of merchandise.
This has prompted Amazon to increase spending on Google’s product listing ads to preserve its traffic, which weighed on profits in Q2 and may again be a headwind in Q3, the analyst told investors.
Meanwhile, Piper Jaffray analyst Michael #Olson says his firm’s Amazon search index indicates Q3 unit growth will be 28%, in-line with the Street and a slight acceleration from 27% in Q2. The analyst believes Amazon is well positioned to beat Q3 margins excluding Whole Foods, but calls Q4 margins a “wild-card.” He expects “solid” Q3 results and remains “highly confident” in Amazon’s growth.
2. WHAT’S NEXT IN WAL-MART FIGHT
Amazon turned the brick-and-mortar retail industry on its head in June when it announced a deal to buy Whole Foods. In his preview, Forte also said that attention will be on the initial performance of Whole Foods and the competitive threat from Walmart (WMT).
Just yesterday, Amazon announced a connected door-lock and security-camera system for Prime members that lets delivery people drop off packages inside of customer homes.
In late September, Wal-Mart announced a limited test to allow in-home delivery of groceries for some customers in Silicon Valley. The initiative was the latest in a series this year from Walmart as it steps up its battle with the online e-commerce leader.
Last week, The Wall Street Journal reported, citing a person familiar with the matter, that Wal-Mart is near a deal with Lord & Taylor that would give the department store dedicated space on walmart.com. Lord & Taylor will continue to operate its own website, but shoppers at lordandtaylor.com will be able to pick up and return items at Wal-Mart’s 4,700 U.S. retail stores, according to the report.
Eventually, Bonobos and Jet.com, both of which are owned by Wal-Mart, could eventually be included in the project, the report added.
Amazon does not disclose membership data for its Prime subscription service, but Consumer Intelligence Research Partners recently released its analysis of buyer shopping patterns for Amazon for the third quarter, which indicates that Amazon Prime now has 90M U.S. members.
Shoppers continue to spend on average about $1,300 per year, compared to about $700 per year for non-member customers, the report added.
In the third quarter of last year, cloud unit Amazon Web Services reported net sales of $3.23B, up from $2.09B a year prior.
AWS segment operating income grew to $861M in Q3 of last year from $428M in the same period of the prior year.
In Q2 of this year, AWS revenue had ballooned to $4.1B and its operating income grew to $916M.
Separately, today Amazon announced plans to open its seventh Canadian fulfillment centre to be located in the greater Calgary region’s Rocky View community. The 600,000 square foot customer fulfillment facility located in Nose Creek Business Park, Amazon’s first in Alberta, will create more than 750 new full-time associate roles – joining Amazon’s current and growing workforce of 2,000-plus full-time fulfillment employees across the country.
In total, Amazon employs more than 4,400 employees throughout Canada working at corporate offices, development centers, and other facilities. The new facility will join Amazon’s network of current fulfillment centres located in Ontario: Brampton, Mississauga, and Milton, and British Columbia: Delta and New Westminster. Associates at this facility will pick, pack, and ship items ranging from aviator sunglasses to zebra costumes.
AMZN last traded at $974.03. It has a 52-weeks trading range of $710.10 – $1,083.31.
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