Amazon Q2 preview: Where next for Amazon stock?

When will Amazon release Q2 earnings?

Amazon is scheduled to release second quarter earnings after US markets close on Thursday July 28.

It will hold a conference call on the same day at 1430 PT, or 1730 ET.

Amazon Q2 earnings consensus

Wall Street forecasts Amazon will report a 5.7% year-on-year rise in revenue in the quarter to $119.5 billion but expects diluted EPS to plunge almost 82% to $0.14.

Importantly, Amazon recently completed a 20-for-1 stock split. This saw it issue 19 new shares for each one already held, bringing down the price and earnings per share metrics. This will be the first quarter where per share figures will be on a split-adjusted basis. You can read more in What You Need to Know About the Amazon Stock Split.

Amazon Q2 earnings preview

It could be a tough quarter for Amazon, which warned it could book its first operating loss in over seven years as growth slows and costs rise. However, markets remain confident it can stay in the black and report an operating profit of $1.6 billion, although this would be down 79% from last year.

Importantly, this will be the last quarter of tough comparatives for earnings, which experienced strong double-digit growth the year before when demand for online shopping and tech increased. That will be compounded by the fact Prime Day – its huge annual sales event for subscribers – was pushed into the third quarter of 2022 from the second quarter of 2021.

Costs are also a factor as they continue to rise and squeeze margins. Operating expenses are forecast to be up over 12% from last year and over $5 billion higher than the previous quarter as the price of everything from fulfilment and marketing to general day-to-day running costs continue to be driven higher by rampant inflation.

Amazon is currently built on three pillars – its core ecommerce Marketplace, its Prime subscription and its world-leading cloud-computing arm Amazon Web Services (AWS). But it continues to spread its tentacles into other markets and has emerging businesses in everything from advertising and video streaming to healthcare and groceries.

Online sales at its Marketplace are forecast to fall some 2.5% from last year as consumers tighten their belts compared to when they were spending more during lockdown last year. This will be partly countered by a 3.8% lift in revenue from the services it provides the millions of sellers using its platform.

Its subscription business is expected to see sales rise over 11% in the quarter, which would demonstrate that Prime is proving more valuable to people as they start prioritising their subscription services amid the cost-of-living crisis. The fact Prime offers multiple services from free delivery to video streaming could make it shine compared to other subscriptions offering just one service, demonstrated by the tough time Netflix has had this year. However, Amazon has also started to raise the price of Prime as it ramps-up investment in video content and grapples with rising fulfilment costs.

Meanwhile, its emerging advertising business – which could become the fourth pillar of Amazon – is expected to see revenue grow 16% in the quarter. That too would be welcome considering the softness in the wider market that has dealt a severe blow to the likes of social media stocks this year.

Amazon Web Services – the jewel in the crown of Amazon that drives the company’s profits – is forecast to deliver a 31% rise in revenue to $19.4 billion and a 39% jump in operating income to $5.8 billion. While the rate of growth is strong, this too is suffering a slowdown compared to what has been delivered in recent years and analysts believe this will continue in the second half of 2022.

Although many of Amazon’s businesses are susceptible to an economic downturn, AWS should continue to deliver as businesses upgrade infrastructure and digitise their operations. While AWS is forecast to contribute just 16% of revenue in 2022, it will be the only reason that Amazon is set to remain profitable this year.

However, it is worth noting that Amazon could emerge a stronger business even if succumbs to any downturn or recession. Its sheer size means it can survive any turmoil and it would likely gain market share from weaker rivals, while its scale means its prices could also become more attractive if people are tightening their purse strings.

Wall Street is expecting Amazon’s sales to bounce back in the third quarter as tough comparatives start to ease and the shift in date of Prime Day provides an additional boost, pencilling-in a 14.7% year-on-year rise in revenue to $127.1 billion. However, profits are set to remain under pressure with consensus figures pointing toward a 20.7% drop in operating income to $3.8 billion.

Where next for AMZN stock?

Amazon shares are in consolidation mode ahead of the upcoming earnings, having drifted between a low of $101.40 and a high of $125.60 during the past 10 weeks. The results could provide the catalyst needed for the stock to breakout.

The 50-day moving average, currently sat at $113, could hold as an intermediary floor should the stock come under renewed pressure, although the $101.40 should be treated as a firm level of support. The stock will swiftly unravel below the $100 mark should it fail to hold. The RSI is in bullish territory but has dipped since recently hitting the ceiling, suggesting this could hold firm, and the fact trading volumes have suffered a notable decline suggests momentum is lacking, with the 5-day average-volume-at-time some 28% below the 100-day average – although volumes are likely to pick up again once the results are released.

The stock can initially target the 100-day moving average at $130 should it break above the current ceiling at $125.60. That would allow it to chase $138 to close the gap created when the stock experienced a dramatic fall in late April, and then the 200-day moving average at $147.50. The 47 brokers that cover the stock see even greater upside potential with an average target price of $183, which is just shy of the all-time highs seen a year ago.

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