Amazon is Poised to Remain Profitable with Strong Q4 Earnings: Here's What to Expect

 

Amazon.com Inc. AMZN Consumer Discretionary - Internet & Catalog Retail | Reports January 28, After Market Closes

Key Takeaways

• The Estimize consensus calls for EPS of $1.64 and revenue of $35.911 billion, slightly higher than Wall Street's estimates and corporate guidance
• Amazon's two main drivers of growth have been Prime membership and Amazon Web Services
• Amazon is coming off its first two quarters of profitability and is expected to continue its upward trend
• What are you expecting for AMZN? Get your estimate in here!

After continually being scrutinized for posting losses, Amazon (AMZN) is coming off two straight quarters of profitability. In 2015, Amazon shares rose 90% and sets the tone for another favorable quarter when Amazon reports Q4 2015 earnings January 28th, after the markets close. The Estimize consensus calls for EPS of $1.64 and revenue of $35.911 billion, slightly higher than Wall Street's estimates and corporate guidance. Compared to Q4 2014, this represents a projected YoY increase in EPS and revenue of 263% and 22%, respectively. The e commerce company's remarkable growth comes on the back of strong Q4 holiday sales, the strength of Amazon Prime subscribers and the dominance of Amazon Web Services.

Amazon's core ecommerce business continues to grow thanks to the strength of Amazon Prime. Amazon's ecosystem continues to grow as the company expands its exclusive products, such as Amazon's Kindle or Echo, which require access to Amazon Prime. During the past 2 years, Amazon Prime memberships have nearly doubled up to 54 million and almost half of all adults in the U.S. have Prime subscriptions. Given Amazon's dominant market share, the company still maintains modest margins from its global scale and footprint. Amazon's focus on  superior customer service helps drive higher purchase frequencies, larger order sizes, and an overall better customer experience. In fact, this past Cyber Monday Amazon processed 23 million orders, a 40% increase from year prior.

Earlier this year, Amazon finally revealed how profitable its web services division was to the overall business. As a result, the limelight has been put on Amazon Web Services as a key engine for Amazon's growth. AWS currently the leads the cloud infrastructure industry, representing about 30% of the market. In recent years, large enterprises such as Netflix have migrated to AWS to be its platform provider which validates their credibility and reliability. In addition, Amazon has begun expanding its web services in five new regions this year, including China, India, and the U.K.  Heavy investments in global expansion on top of Google and Microsoft's ascension in cloud computing will put pressure on Amazon's margins. On the bright side the expected growth in cloud computing and Internet of Things (IoT) should support an optimistic outlook as Amazon continues to expand its web services

Do you think AMZN can beat estimates? There is still time to get your estimate in here!

Photo Credit: Zhao