Amazon Q1 preview: Where next for Amazon stock?

Josh Warner
By : ,  Market Analyst

When will Amazon report Q1 2022 earnings?

Amazon is scheduled to publish first quarter earnings after US markets close on Thursday April 28.

 

Amazon Q1 earnings preview

Wall Street forecasts Amazon will report a 7.3% year-on-year rise in net sales in the first quarter to $116.4 billion. Operating income – Amazon’s headline earnings measure – is forecast to plunge over 38% from last year to $5.4 billion and analysts are expecting EPS to fall to $8.40 from the $15.79 delivered the year before. This will be thanks to tough comparatives from last year when earnings exploded thanks to a surge in demand for online shopping during the pandemic and because costs are growing at a faster pace than sales.

Tough comparatives will remain a headwind for the remainder of 2022, although they will get easier as the year goes on.

Notably, those forecasts sit at the upper end of Amazon’s guidance to deliver between $112.0 billion to $117.0 billion in sales and operating profit of between $3.0 billion and $6.0 billion in the quarter.

There are concerns that Amazon’s ecommerce platform could see growth and demand suffer this year, not only because it will face tough comparatives but because of the anticipated cutback in consumer spending as they grapple with rising bills and costs. We saw online sales suffer its first decline in years in the last quarter and that is expected to remain the case in the first quarter of 2022. At the same time as demand is waning, costs are surging across the board as Amazon battles against higher expenditure on everything from logistics and transportation to freight and wages, which is threatening profitability.

Total operating expenses were up almost 13% year-on-year in the last quarter, growing at a significantly faster pace than Amazon’s topline. Analysts believe operating expenses will grow over 11% year-on-year in the first quarter to $110.7 billion. As well as rising costs across the supply chain of its ecommerce business, Amazon is seeing double-digit lifts in expenditure on everything from marketing to technology and digital content.

However, Amazon’s diverse business means it does have powerful levers to pull that can counter any weakness in ecommerce. Amazon Web Services – the largest cloud-computing company in the world and also the engine behind Amazon’s profits – continues to grow at pace with analysts forecasting sales will jump over 35% to $18.2 billion in the first quarter – marking an acceleration from the year before. AWS remains the jewel in the Amazon crown. The fact this, alongside other faster-growing parts of the business such as online advertising, also offers significantly higher margins could prove crucial in preserving profitability if margins contract in the ecommerce unit this year.

However, growth in online advertising is grinding lower amid a broader slowdown in the market and there are also concerns that Amazon’s subscription services, spanning from its core Prime service to its audiobook service Audible, could also struggle if people cancel no-obligation services to save money and cutback on spending.

With all this in mind, Amazon is expected to grow revenue by over 14% in 2022 but report a tepid 0.1% rise in EPS as profitability is squeezed, although markets think it can start delivering a far more impressive performance in 2023 (when EPS is forecast to jump over 52%) as tough comparatives fall away.

 

Where next for AMZN stock?

Amazon shares have been under pressure since November and have proven highly volatile, ranging from as high as $3762 to as low as $2671. The stock last closed at $2921.

The latest leg of the downtrend started late last month and has seen the stock lose over 13% in value and sink below all three moving averages. The bearish RSI, supported by a slight uptick in volumes in the last five days, suggests we could see the stock sink further before rebounding once again.

Notably, the 200-day moving average that proved to be a reliable floor for the stock since the start of the pandemic has collapsed since the start of 2022. That has now been replaced by the 22-month low hit in March of $2720, although $2749 could also prove to be a level of support for the stock going forward.

On the upside, Amazon could swiftly recapture the 50-day sma at $3084 and then the 100-day sma of $3163 once this downtrend reverses, but it needs to move above the 200-day sma at $3296 and breach the 2022-high of $3416 to move above the peak of the latest uptrend and install confidence of a move higher.

 

AMZNTACI

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