Technical & Financial

Technical

Taking a look at Amazon after it reported its earnings yesterday. Currently, its stock is trading at around $178.26 on the futures contract in the pre-market session. Looking at the daily timeframe, we can see that the price has managed to remain around the same levels after high volatility upon the earnings release. The price actually fell as low as $166.23 yesterday, testing both the trendline support and the 100-day moving average support as they both present resilience. The area of the trendline and 100MA is clearly the primary support level to focus on here, which now reads $166.23-$170.36. A break and close below these levels may spark some concerns, perhaps leading to a sell-off towards $155-$160. However, Amazon’s earnings were generally positive with the only factor souring the sentiment being the lower revised guidance due to a more cautious approach. This is explained in more detail below. The fact that the markets might also be in a correction phase, has potentially restricted a bullish reaction. Towards the upside, the level of $182.39 followed by $184.46 are the resistance points. A break and close above $184.46 would certainly incentives the bulls to push the price back up to the all-time highs once again. The technical indicators remain a mixed bag, the MACD is negative but seems like it is trying to flatten out. Whereas, the RSI is neutral as it reads 47.

 

Earnings Preview – Financials

On Tuesday, Amazon released quarterly results that were above Wall Street's projections, citing growth in cloud computing as a result of increased interest in artificial intelligence.

During the conference call, CFO Brian Olsavsky informed reporters that capital expenditures will rise all year long, from $14 billion in the first quarter.

LSEG data shows that first-quarter sales rose 13% to $143.3 billion, above the expectation of $142.5 billion. In the first quarter, net income more than quadrupled to $10.4 billion.

Based on LSEG data, the business projects sales for the current quarter ending in June of $144.0 billion to $149.0 billion, compared with analyst average forecasts of $150.07 billion.

Amazon Web Services (AWS) reported first-quarter revenue of $25.0 billion, up 17% from $24.53 billion.

According to a statement from CEO Andy Jassy, AWS is now on track to reach $100 billion in revenues annually.

Net income during the first quarter of 2023 was $10.4 billion, or 98 cents per diluted share, as opposed to $3.2 billion, or 31 cents per diluted share, in 2023. That was greater than the 83 cent average EPS projection made by analysts.

The efforts made by Amazon to expand its advertising division contributed to the quarter's outcomes. Ad revenues for the corporation totaled $11.8 billion, a 24% increase from the previous year. According to Jassy, advertisers are thrilled by the company's addition of unskippable commercials to its Prime Video streaming service this year. For $2.99 a month, customers can choose not to.

 

Summary

To summarise the above, from a technical perspective the stock has great support below and is managing to uphold its value even during increased fear from investors regarding the market. The recent fear and profit-taking have been caused due to stronger data in the US, along with a rising dollar and higher yields. This has led investors to assume that the first interest rate cut is less likely in the near-term, anticipating that the Fed may continue in a hawkish manner for the time being. Therefore, if Amazon can weather this period in the near-term, with only minor pullbacks or staying rangebound, then it will be positioned well going into the second half of the year.

From the earnings outlook, we can see that there are many more positives than negatives. It can even be argued that ‘caution’ is more of the correct term to use here rather than ‘negatives’ with what is highlighted above. Even though the pros massively outweigh the cons, the current market sentiment is weighing on the stock. Additionally, the news of rising capital expenditure has been taken negatively by investors, but this is actually longer-term investing. The company will most likely invest capital into further AI developments as well as other areas of the business. Hence, in the short-term this might have an impact on total capital, which could lead to some downside. However, in the longer-term it should drive growth. Lower revised guidance for the current quarter is another factor that will weigh on the stock in the near-term. This simply implies that growth is slowing, but the company is just adjusting itself to manage expectations. Again, small short-term issue, but longer-term expectations should be more manageable.

(Sources: investing.com LSEG.com)