Amazon (AMZN) is scheduled to report results of its third fiscal quarter after the market close on Thursday, October 28, with a conference call scheduled for 5:30 pm ET. What to watch for:
1. E-COMMERCE SHARE GAINS, ADVERTISER DEMAND: Wedbush analyst Michael Pachter expects Amazon to report third quarter results above the high-end of guidance driven by seasonal trends, e-commerce share gains, a recovering economy, and robust advertiser demand. Amazon's profitability should expand as it grows opex more slowly than revenues, the analyst contended, adding that Amazon Web Services, Fulfillment by Amazon, and ads should drive steady margin expansion, with Prime memberships driving overall retail revenue growth. Pachter has an Outperform rating and a price target of $4,300 on the shares.
2. HIGHER EXPENSES: On Friday, Credit Suisse analyst Stephen Ju lowered the firm's price target on Amazon.com to $4,200 from $4,700, while keeping an Outperform rating on the shares as he previewed third quarter results. His lower target contemplates a higher level of fulfillment and shipping expenses for the balance of 2021 and into 2022 following wage hikes for fulfillment center employees, other incremental compensation increases and hiring plan announcements.
3. OUTLOOK: Back in July when the company reported second quarter results, Amazon said it saw third quarter revenue between $106B-$112B, with consensus at $111.6B. The e-commerce giant also said that net sales were expected to be between $106.0B-$112.0B, or to grow between 10% and 16% compared with third quarter 2020. This guidance anticipated a favorable impact of approximately 70 basis points from foreign exchange rates. Operating income was expected to be between $2.5B-$6.0B, compared with $6.2B in third quarter 2020, assuming approximately $1.0B of costs related to COVID-19.
4. AMAZON-BUILT SMART TVS: Amazon announced in September an all-new lineup of Fire TV devices with its first-ever Amazon-built smart TVs, the Amazon Fire TV Omni Series and 4-Series smart TVs, and the all-new Fire TV Stick 4K Max. The Fire TV Omni Series will be available in 43" for $409.99, 50" for $509.99, and 55" for $559.99. The Fire TV Omni Series with Dolby Vision will be available in 65" for $829.99, and 75" for $1,099.99. The Fire TV 4-Series will be available in 43" for $369.99, 50" for $469.99, and 55" for $519.99.
Commenting on the announcement, KeyBanc analyst Justin Patterson told investors the new Amazon devices appear similar to Roku's (ROKU) offerings. While there will be modest differences in specifications across TVs, there aren't any marked difference that will be noticed by consumers and pricing appears largely consistent across ranges, Patterson added. The analyst does not view the announcements by Amazon "as marking an adverse change in competitive intensity." As such, Patterson sees Amazon's announcement as an "incremental positive to Roku and its competitive position."
Fears that Amazon would look to subsidize the smart TV offering with aggressive price points to maintain and grow the Fire TV OS user base "appear to be unfounded," Stephens analyst Nicholas Zangler said following the news. The analyst believes price points appear to more closely compete with the basic offerings of premium manufacturers like Samsung (SNNLF), LG and Vizio (VZIO) and reduce the threat to Roku, whose Roku OS comes embedded on 38% of all smart TV unit sales.
