Amazon 📦 🤖
Amazon tonight, and I'll be honest, this is the one I've been waiting on all week. It's the biggest position in my TFSA at 35%, so yeah, I have skin in this one.
The Street wants about $1.96 to $2.01 a share on roughly $202B in revenue. Amazon guided sales between $197 and 202B, with operating income of $22.5 to 26.5B, up big from $17.4B last year.
Here's the thing though. Consensus revenue is sitting right at the very top of the guide. So even a good number might not surprise anyone. Keep that in mind before you judge the headline.
Don’t get fooled by the growth rate. It'll look like growth slowed down hard from last quarter's 20%. It didn't.
Prime Day ran in June this year instead of July, so it landed in Q2. Amazon says growth would be about 400 basis points higher without that shift. Calendar noise. Ignore it.
AWS is the whole print. Everything else is a side conversation.
Last quarter AWS grew 36.7% to $42.2B, fastest pace in 18 quarters, with a 39.4% margin. The models have it around $45.4B this quarter, up about 37.5%. So the bar is simple. Hold near 37% and the story is alive and well. Slip into the low 30s and the stock gets sold, I don't care what the EPS says.
Demand isn't the question here. There's a $496B backlog and capacity is basically sold out through 2027. This is a supply story.
One more thing I always remind myself with Amazon. Read the operating income, not the EPS.
The EPS bounces all over the place because of the Anthropic stake getting revalued. Last quarter that was $53.4B of other income.
That's not the business. The business is the $22.5 to 26.5B operating income guide. Judge it on that.
Then there's the spending, because there's always the spending.
Roughly $220B in capex this year. Free cash flow is negative over the last twelve months and long term debt doubled to about $129B.
Look at last night. Google spent big, printed negative cash flow, and got punished. Microsoft spent less than feared and got rewarded.
Amazon has to show it belongs in the second group, not the first. Hold the capex line and hold AWS growth, and this print works. Raise the spending guide again and it'll get the Google treatment.
The setup is actually interesting. The Street loves it, average target around $332, UBS just went to $348. But the stock trades at roughly 28 times forward earnings, which for Amazon is near a five year low.
It has lagged its own earnings growth because everyone's worried about the spending.
Options are pricing about a 7% move tonight, so buckle up either way, and Chris Camillo called Amazon his number one trade going into this print, so I'm not the only one watching closely.
My drawdown line is at $229.76 and the stock is around $253, so the watchlist isn't the story tonight. The thesis is.
Not financial advice. Just how I'm going into it.
