Nasdaq 100 outlook: How will Amazon earnings impact AMZN stock?

Key takeaways

• Easy comps will flatter results, but Wall Street hoping trends will improve across the board for Amazon
• AWS is central focus, with analysts expecting to see signs of growth levels stabilizing and investors hoping AI will start to provide a boost
• Ecommerce arm recovering but economic outlook is uncertain, with Prime Day update to provide early insight into Q4
• Consumers still see value in Amazon’s subscription services like Prime
• Advertising revenue growth should continue to outpace larger rivals
• Amazon shares are at five-month lows ahead of the results
• Nasdaq 100 is at a four-month low

 

When will Amazon release Q3 earnings?

Amazon releases third quarter results after US markets close today, on October 26. A conference call is scheduled for 1430 PT.

 

Amazon Q3 earnings consensus

Amazon is forecast to report an 11.4% year-on-year rise in quarterly net sales to $141.56 billion as all of its core businesses keep expanding.

Operating income is seen jumping to $7.7 billion from just $2.5 billion the year before. Diluted EPS is expected to more than double to $0.60 from $0.28.

The forecasted surge in earnings will be down to weak comparatives from last year, twinned with better margins as costs are now growing at a slower pace than revenue.

 

Amazon earnings preview

Easy comparatives will flatter results this quarter but Wall Street is expecting to see improving trends this quarter. However, mixed results out from other members of Big Tech and an uncertain economic outlook pose a threat.

 

AWS: Will AI provide a boost?

Amazon Web Services, its cloud computing arm that generates the bulk of Amazon’s profits, will be a key focus. The brakes have been coming down on growth for over 18 months but analysts are forecasting revenue will remain level with what we saw in the last quarter at 12.6%, suggesting it could finally be starting to stabilize.

AWS is the largest cloud computing company in the world, but there may be fears it is losing ground. Microsoft is its biggest rival and posted faster revenue growth from its cloud operations when it reported results earlier this week. Intelligent Cloud revenue was up 19% and its Azure unit jumped 29%! That has allowed Microsoft to shine this earnings season, while Alphabet has sunk to three-month lows after Google Cloud grew slower and was less profitable than hoped, spooking investors that it is not benefiting from AI demand as fast as its rivals. Will Amazon suffer the same fate and fall behind, or will it shine and show it is rivaling Microsoft?

That suggests AWS may need to impress with its growth or its outlook this quarter. Microsoft’s more rapid expansion is being put down to its early lead in AI, underpinned by its investment in ChatGPT-maker OpenAI.

 

Will consumers keep spending on Amazon?

Elsewhere, Amazon’s ecommerce operations appear to be on a path to recovery, aided by strong double-digit growth in demand for the array of services it provides third-party sellers using its platform.

There are fears that consumer spending could slow as household budgets come under more pressure, and warnings that businesses are pulling back on advertising suggests they are seeing lower demand. Speaking of advertising, Amazon’s ads arm is likely to outpace larger rivals with revenue forecast to jump 21% from last year and a beat here would be of particular significance in light of Meta’s more cautious outlook.

One early insight as to how consumer spending is shaping-up as we approach the busy holiday shopping season is the level of success of its recent Prime Day sales event that was held earlier this month. That could influence estimates for ecommerce in the fourth quarter, when markets are currently anticipating another acceleration in sales. The growth delivered from its subscription services has sped-up over the past year to suggest consumers are still seeing value in subs like Prime.

 

Will Amazon’s outlook impress or disappoint?

The outlook for Big Tech stocks is all the more significant this earnings season given the limited visibility over the economic horizon, so keep a close eye on Amazon’s guidance for the fourth quarter – which is seen as a golden quarter for retailers – and how it fares versus Wall Street forecasts.

Analysts are looking for Amazon to target net sales of $166.57 billion and operating income of $8.7 billion in the final three months of 2023.

 

Where next for AMZN stock?

Amazon shares are trading lower in premarket trade today and have sunk to their lowest level in almost five months. The stock has been losing ground since mid-September, but is still up over 40% year-to-date.

The stock has now set its second lower-low during the current correction and the question is where it will bottom-out? There is little in the way of support before $118 and then it would be relying on the 200-day moving average to provide a safety net, having not been in play for the last five months. The RSI is in bearish territory and there is scope for the share price to fall further before it flirts with oversold territory. $114 could be regarded as the immediate near-term floor.

On the upside, $126 is the immediate goal before it can look to test the falling trendline. A close above $128.50 is needed to set a new higher-high.

  

Nasdaq 100 analysis: Where next?

The Nasdaq 100 suffered one of its heaviest daily falls of 2023 yesterday, which saw it plunge to four-month lows and below the bottom-end of the support zone that has been in play since June. The index had managed to stave-off setting a new lower-low for almost three months but is now showing signs that the downtrend that started in July is still in play.

Assuming the downtrend continues, we may not see the next level of support until 14,200.

A return to the support zone, above 14,400, is the immediate goal and it would need to clear 14,750 to set a new higher-high.

  

 

Take advantage of extended hours trading

Amazon will release earnings after US markets close and most traders must wait until they open before being able to trade. But you can get ahead of the game by taking a position in premarket hours by taking advantage of our service that allows you to trade Amazon and other Big Tech stocks using our extended hours offering.

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