US earnings preview: Amazon Q1, 2023

Key dates

Thursday, April 27th is when Amazon is expected to release its figures for the first quarter of this year.

Company profile

It has been a struggle for the tech giant’s share price to recover from the drop suffered after its release for the fourth quarter of last year back at the start of February. It managed to beat on revenue and advertising with the latter a notable bright spot amidst a miss for other ad giants.

Where it failed to match estimates, was on its cloud business, and more worryingly offered lighter guidance on revenue for the most recent quarter. Dented consumer discretionary spending within its e-commerce segment at a time when the focus is on necessities in an inflationary environment has meant the focus has been on cutting costs to deliver better figures.

And while its CEO, Andy Jassy, understands that they face “an uncertain economy... [they]... remain quite optimistic about the long-term opportunities for Amazon”. In his recent annual shareholder letter released last week, he added that there’s been “a deep look across the company, business by business, invention by invention” to examine each of its “long-term potential to drive enough revenue, operation income, free cash flow, and return on invested capital.”

Citing plans to lower costs on several occasions, and referencing challenges, he’s optimistic they’ll “emerge from this challenging macroeconomic time in a stronger position than when we entered it.”

Amazon share price: forecasts from Q1 results

Items that’ll be noted include any further clarification on those costs and efficiencies after more layoffs were already factored in.

Their expectations of growth in e-commerce at a time when consumption is weakening, ad business, and cloud earnings (Microsoft and Alphabet will be releasing their figures two days before Amazon so expect investors and traders to note the performance of any segments in the two companies that are within Amazon’s core offering).

What about the figures?

Expectations are it’ll be an EPS (earnings per share) of $0.22 healthier than the fourth quarter but well beneath the year-ago quarter, and for revenue to drop q/q to $124.5bn that’s at the upper end of its guidance.

As for analyst recommendations, there’s only one in the sell territory with none in the strong sell, four on hold, a whopping 31 in buy, and 16 in strong buy territory, easily giving the tech titan a decent average buy, and for an average price target above $136 (source: Refinitiv).

Trading Amazon’s Q1 results

Weekly technical overview and trading strategies

Looking at the weekly chart below with technical indicators, the story since the fourth quarter of last year has been one of the consolidatory moves with prices moving back towards an average, and causing key technicals to remain closely huddled to each other and price.

Looking further behind that (i.e., since the start of 2022) and that average has no doubt been lower, more bear average in terms of the technical overview with its bear trend holding, and in line with what we’ve seen within the tech sphere that thus far has enjoyed a decent 2023 after a bruising 2022.

Prices are beneath all its main weekly long-term moving averages (MA) but now above its main short-term ones, and given that a bit of a technical triangle is forming, it is giving momentum traders hope a breakout might be in store. Given they’re extreme buy (see retail sentiment below), they are hoping that it’ll be a breakout to the upside with recent higher lows cited as a positive.

Its ADX (Average Directional Movement Index) reading isn’t in trending territory just yet, and on the DMI (Directional Movement Index) front it is +DI above its -DI after a positive cross occurred on the weekly time frame back in January.

Putting it all together, while it’s a bear average technical overview due to moves that started last year, as of late it no doubt has been a very weak one that’ll need little to shift to consolidation should oscillatory moves persist or further higher lows occur.

Keep in mind we’re talking technicals before a fundamental event, for if these technical levels have narrowed due to relatively lacklustre price action, and once volatility hits on the earnings release and you can be sure they’ll struggle to hold even if they are longer-term weekly levels and not shorter-term daily ones.

The overview on the release is usually more volatile, whereas conformist strategies under that situation would be breakouts and contrarian reversals.

Amazon weekly chart with key technical indicators

Amazon weekly chart with IG client sentiment

IG client sentiment* and short interest for Amazon shares

Retail traders have opted to hold an extreme buy bias for months on end, with the latest showing they’re at a staggeringly high 94% and rising from 83% yesterday. The chart above plots retail trader sentiment as % long on the blue-dotted line against the left axis, where they only briefly took profit on longs before re-initiating and holding when prices went into retreat.

There’s hardly any interest in shorting based on the latest short interest readings, which is at 0.63% of outstanding shares (64.3m of 10.25bn) and at 0.7% of shares floating.

It is rare to see that figure fall into the lower 1% handle for quite some time (source: Refinitiv).

_{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, outer circle as of this morning. Inner circle is retail sentiment as of yesterday morning.}