Amazon (AMZN) – Get Amazon.com Inc. Report reported better-than-expected results in its second-quarter earnings release. The news for nearly every single aspect of Amazon’s business was almost too good to be true: The e-commerce segments had nearly zero losses, and Amazon Web Services (AWS) remained a safe profit generator.
However, Amazon reported another bottom-line miss. But this time, Rivian’s (RIVN) – Get Rivian Automotive Inc. Report performance was to blame. Amazon’s stake in the automaker caused it to lose nearly $6 billion in non-operating income.
In the end, investors seemed pleased. Shares have climbed over 14% since the earnings report. So is August the best time to purchase some AMZN shares?
(Read more from the Amazon Maven: Amazon’s Q2 Earnings: Returning to the Top?)
Beating the Expectations
Amazon presented poor results in its first-quarter financial disclosure. But even worse, the Seattle-based company delivered gloomy guidance for its second quarter (Q2), with revenues expected to range between $116 billion and $121 billion. The Wall Street consensus was $119 billion.
Guidance for operating profits was also low, ranging between a $1 billion loss and a $3 billion profit.
Because Amazon hadn’t shown operating losses since 2015, analysts were forced to lower their price targets to better match the current scenario. Wall Street believed the e-commerce juggernaut was closer to an operating loss than to a significant profit.
But Wall Street was in for a pleasant surprise. Amazon’s Q2 revenue ($230 million) surpassed expectations, and operating income of $3.3 billion beat the consensus by more than 10%.
Not as “Cheap” as Before
Amazon has never been truly cheap. Even when its stock price dropped amid fears of a possible recession, its multiples could hardly have been considered “significantly low” compared to the competition.
But recent results have raised the bar again.
Amazon’s price-to-earnings (P/E) ratio on June 30 was 95. On August 1, its P/E was higher than 120.
Although that’s far below the stock’s record high P/E multiple of 1,078, we could debate whether investors were overhyped about last quarter’s earnings or whether the stock is finally gaining traction again.
It would be wise to wait at least a couple of weeks before adding more AMZN to your portfolio. The ghost of inflation is still haunting the equities market and could mitigate the effects of the stock’s recent rally.
However, this is a risky strategy, because nobody can predict where the stock is heading in the short term.
Still a Buy?
The third quarter may be a decisive one for Amazon’s stock.
If Amazon beats the market’s expectations for Q3, its stock will most likely skyrocket as investors anticipate Q4 results. After all, Amazon will have two sales boosts in the fourth quarter — the holiday season, plus a second Prime Day event.
Amazon’s guidance for the third quarter predicts revenue ranging between $125 billion and $130 billion (the consensus forecasts revenue of $126.49 billion). And the company expects operating profits to be anywhere from $0 to $3.5 billion.
Returning to Q2, the good news is the e-commerce segments had no significant operating losses. And AWS’s operating income has been higher than $3.5 billion for at least four quarters in a row.
Therefore, Amazon might easily beat its $3.5 billion projected income in Q3, indicating that a turnaround might happen sooner, rather than later.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)