Amazon Q3 earnings preview: what to expect from AWS, revenue and EPS

When is Amazon's results date?

Thursday, 26 October, is the date when the tech giant is expected to release its financial results for the third quarter of this year.

Amazon's share price: forecasts from Q3 results

Past performance and sales drivers

Expectations are high that Amazon will deliver another significant beat in both earnings and revenue, similar to their second-quarter performance, which was accompanied by stronger guidance following a robust Prime Day event.

Key focus areas for investors and traders

Several factors will catch the attention of investors and traders. A noteworthy aspect is the growth in Amazon Web Services (AWS), which constitutes a substantial portion of the company's operating profit.

The AWS growth won't merely be a quarter-on-quarter (QoQ) comparison after having "stabilised" previously; it will also be evaluated relative to how it performs against Microsoft and Alphabet's respective cloud units, both of which have previously seen better growth, albeit from a lower baseline.

Additionally, the deployment of its AI products will be under scrutiny as a likely single positive influence this year in terms of attracting investment into equities amid several negative market factors. It is less probable that Amazon's advertising business will maintain double-digit growth this quarter.

Updates on cost-cutting initiatives, supply chain management, and consumer behaviour will also be closely examined to justify the company's high forward earnings estimates.

Anticipated financial metrics

Expectations point towards an Earnings Per Share (EPS) of $0.58, lower QoQ but significantly higher YoY. Revenue is projected to improve to approximately $145 billion, exceeding the upper end of the company's own guidance for the quarter. This performance is anticipated to be better across nearly all key segments.

Gross profit margin is expected to improve compared to last year, although it may decline slightly from the previous quarter's high of 48.4% to 47.3% (source: Refinitiv).

Analyst consensus and share price implications

Analysts are overwhelmingly recommending a 'Buy', with 17 rating it a 'Strong Buy', 33 a 'Buy', only two on 'Hold', and none for 'Sell' or 'Strong Sell'. The average price target is set at $170.33, well above the current share price (source: Refinitiv).

Trading Amazon's Q3 results: weekly technical overview and trading strategies

Previous technical outlook

The technical picture was rosier the last time we conducted the earnings preview for Amazon; its long-term, narrow bull trend channel was generally intact back then. However, as of last September, the price broke below it, complicating the technical landscape. Most of its key technical indicators have now shifted to a more neutral stance, rather than a bullish one.

Current technical indicators

The stock remains above several of its main weekly long-term moving averages, but it is below its 200-day moving average and its primary weekly short-term averages. Much of the price action is in the lower half of the narrowing bands. Its RSI (Relative Strength Index) is nowhere near overbought territory.

However, on the DMI (Directional Movement Index) front, the DI+ remains above the DI-, and the ADX (Average Directional Movement Index) reading is still indicative of a trending market.

Trading strategies amid earnings

Such an outlook is generally more consolidative than bullish, even if there is a touch of positive technical bias in longer time frames like the weekly chart, which incorporates more historical data.

In light of a fundamental event like earnings, this tends to override technical indicators, leading to increased caution. This implies that traders following conformist strategies against the prevailing move should only do so after a significant reversal.

Meanwhile, contrarian traders can continue to rely on breakout strategies beyond the stock's weekly first-level resistances, especially if they anticipate further follow-through without triggering a reversal.

Amazon weekly chart with key technical indicators

Amazon weekly chart with IG client sentiment

IG client sentiment and short interest for Amazon shares

Regarding sentiment, there has been a consistent trend of extreme buying bias among retail traders for several months. This bias remained somewhat lower as prices increased from $90 to $140, enticing long positions to close out and new short positions to initiate. About a month ago, there was a pullback into the $120s, which led to a reversal of this trend. Currently, at the beginning of this week, sentiment remains extremely biased towards buying at 91%, with little change from the previous week.

Short interest on the exchange remains below 1%, and it has not been a significant factor for quite some time. The most recent data, from the end of last month, showed short interest at around 77 million, representing 0.74% of the total shares and 0.82% of the shares available for trading.

_{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of the start of this week for the outer circle. Inner circle is from the start of last week.}