Amazon Stock Is Up 50% YTD, Can It Top The Estimates In Q3?

Amazon (NASDAQ: AMZN) is scheduled to report its fiscal Q3 2023 results on Thursday, October 26, 2023. We expect Amazon to beat the consensus estimates of earnings and revenues. The company surpassed the street expectations in the last quarter, with net revenues increasing by 11% to $134.4 billion. It was driven by an 11% rise in North America, a 10% increase in International, and a 12% growth in Amazon web services segments. We expect the third quarter result to follow the same trend. Our interactive dashboard analysis on Amazon’s Earnings Preview has more details.

Amid the current financial backdrop, AMZN stock has faced a notable decline of 25% from levels of $165 in early January 2021 to around $125 now, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. However, the decrease in AMZN stock has been far from consistent. Returns for the stock were 2% in 2021, -50% in 2022, and 51% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 10% in 2023 (YTD) – indicating that AMZN underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Consumer Discretionary sector including TSLA, HD, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AMZN face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?

Our forecast indicates that Amazon’s valuation is $144 per share, which is 14% above the current market price of around $127. 

(1) Revenues to edge past the estimates

Amazon’s revenues grew 10% y-o-y to $261.7 billion in the first two quarters of FY2023. 

• All major categories posted growth over the first half – physical stores (7%), third-party seller services (19%), subscription services (14%), advertising services (21%), and AWS (14%). We expect the same trend to continue in Q3. 
• The online stores category contributes close to 40% of the net sales. It increased 2% y-o-y over the same period. We expect the same momentum to follow in Q3.
• Overall, we forecast Amazon’s revenues to touch $558.35 billion for the full-year 2023.

Trefis estimates Amazon’s fiscal Q3 2023 net revenues to be around $134.59 billion, marginally above the $133.39 billion consensus estimate.

(2) EPS is likely to top the consensus estimates

Amazon Q3 2023 adjusted earnings per share (EPS) is expected to be $0.57 per Trefis analysis, 4% above the consensus estimate of $0.55. The adjusted net income increased from -$5.87 billion to $9.92 billion in the first half of FY 2023. It was primarily because of lower operating expenses as a % of revenues and a significant decline in the total non-operating expenses from $14.9 billion to $773 million. We expect the Q3 results to be on similar lines. Overall, Amazon is likely to report a revenue per share (RPS) of $55.22 for the full-year 2023. 

(3) The stock price estimate is 14% more than the current market price

We arrive at Amazon’s valuation, using an RPS estimate of around $55.22 and a price-to-sales (P/S) multiple of just above 2.5x in fiscal 2023. This translates into a price of $144, which is 14% above the current market price. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

[1] Month-to-date and year-to-date as of 10/24/2023
[2] Cumulative total returns since the end of 2016