What To Expect From Amazon’s Q3 Earnings

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Amazon (NASDAQ:AMZN) is scheduled to report its results for the third quarter on Thursday, October 27th. The company significantly outperformed expectations in the first six months of 2016, in terms of both top line and bottom line results. Amazon registered 30% growth in revenue to about $60 billion in the first six months of 2016, driven by solid growth across divisions —  especially Amazon Web Services (AWS), the company’s public cloud division. Operating income more than tripled to about $2.4 billion and the company’s operating margin improved by 240 basis points to 4.0% in the first half of 2016. This helped Amazon post extraordinary 4000% year-over-year earnings growth in the period to $2.90 a share.

In the third quarter, the company expects net sales of $31.0-$33.5 billion and operating income anywhere between $50 million and $650 million. We think Amazon should be able to comfortably achieve its sales target considering its same-store-sales (SSS) grew consistently in the third quarter. [1]

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In the second quarter, Amazon’s company-wide operating margin improved considerably over the prior year quarter. It improved 220 basis points to 4.2%, driven by a significant year-over-year increase in profitability across the North American and AWS (cloud services) businesses. This indicates that both gross margin improvements (due to growing third-party business) and efficiency improvements are offsetting the increased investments in Prime and other growth initiatives. While the company should continue to see improved profitability going forward, Amazon’s margins could witness a slight decrease in the near term owing to increased investments.

Have more questions about Amazon? Please refer to our complete analysis for Amazon 

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Notes:
  1. September 2016 ChannelAdvisor Same Store Sales (SSS), Channel Advisor, Oct 7 2016 []