Amazon Surprises with Soaring Share Price

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Amazon Surprises with Soaring Share Price

By Lex Yaranu | Sunday, July 26th, 2020

A surge in pre-market trading on Friday for Amazon.com caught even some long time market watchers off guard. The online retailer reported the day before it received an unexpected second quarter profit and better revenue than projected. For those who wrote off shares in online retailers’ post-holiday season the net sales of $23.18 billion in the last three months up to June 30 th were astounding considering the $19.34 billion net sales for this time last year for the Internet retail giant.

While the 27% net sale upswing isn’t impressing trend spotters, at least not yet, it is good news for those interested in the online market operating at more than break-even levels. Amazon typically reinvests profits, but this demonstrates its ability to show profit after cutting spending.

According to online market watchers this could demonstrate to investors that if online retailers want to make profits it’s possible. According to Chief Financial Officer Brain Olavsky Amazon’s Prime delivery which took off slowly in popularity has in the last few taken off, and with added subscribers it’s proving as profitable as the company hoped.

Another contributor for Amazon’s weekend surprise for investors was an unforeseen rapid growth in Amazon’s cloud computing service called Amazon Web Service with sales that grew 81% from last year for 8% total quarterly revenue. Following on the heels of a 49% growth in the first quarter the once maligned decisions on Amazon’s shift of focus appears to be paying off. Other new launches such as Amazon Business have yet to see the same growth.

The giant makes these gains while facing some of the stiffest e-commerce competition in years, and while some investors have taken flight. Amazon wouldn’t comment on rival companies, only stating a determination to remain invested in securing a foothold and continue to attract customers.

Amazon sent a strong message to future investors claiming the company expects net sales to grow in a range of $23.3 -$25.5 billion. This is compared to analyst’s median projections of $23.9 billion. Shares of the company took flight to 18.21 in pre-market trade Friday hitting $570.00 by 09:44GMT.

Amazon Sees Soaring Share Prices Following Q3 Earnings Beat

SEATTLE, WA – The grocery business seems to be treating Amazon just fine. The company’s newly released Q3 financial report was met with much enthusiasm, with shareholders catapulting stock prices up nearly 8 percent. In the report, Amazon topped Wall Street expectations for revenue by just around $1 billion, as well as exceeding earnings per share expectations by a whopping 49 cents.

These wins came as a sweet surprise to many investors who expected Amazon to follow its usual suit of investing heavily back into its business during the third quarter, reports CNBC. Instead, earnings were bolstered by both a strong quarter for North American sales, as well as a push for its Amazon Web Services. This is was also the first quarter that represented sales from Amazon’s acquisition of Whole Foods, raking in $1.3 billion in sales.

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Furthermore, the retailer has eyed new horizons for its Q4, considered by many to be its most profitable. Amazon has set expectations for net sales in Q4 to hit between $56 billion and $60.5 billion, or, in other words, grow between 28% and 38% over Q4 2020. Amazon said in a press release that this estimate includes approximately 1,000 basis points of impact to our year-over-year growth rate from its acquisition of Whole Foods Market.

All in all, Amazon’s report was filled with highlights, but according to Reuters, here are a few of the most notable:

  • Revenue hit $43.7 billion versus $42.14 billion expected
  • EPS hit 52 cents versus 3 cents per share expected
  • AWS revenue was $4.58 billion versus $4.51 billion expected
  • Revenue increased 34 percent from last year, in part due to the $1.3 billion in sales from Whole Foods
  • North American sales were $25.4 billion, up 35 percent from last year
  • International sales grew 29% to $13.7 billion

As of 7:12 PM EDT yesterday, Amazon’s shares had risen 7.82% in after-hours trading, putting each share at a price of $972.43. By the end of the day, the company’s market cap was valued at $467.14 billion, according to Google Finance. According to CNBC, Amazon shares have grown 30 percent year-to-date.

This is just the beginning of what we will be sure to see from the new grocery-focused Amazon company, and AndNowUKnow will be keeping an eager eye on the retailer’s Q2.

How To Profit From Amazon’s 5,100 Percent Earnings Surprise

There are few things that can send a stock soaring like a positive earnings surprise. When a company exceeds expectations, it sends a powerful message to the street that business is booming — or at least improving.

High, positive earnings surprises can have a dramatic effect on share price. This effect is on display now, as third-quarter earnings season wraps up.

Amazon (Nasdaq: AMZN) delivered one of the best reports of the quarter, with earnings of $0.52 per share blowing past expectations of $0.01. The news sent shares of Amazon soaring 13% in one day, adding a mind-boggling $66 billion to Amazon’s market cap in less than 24 hours.

One way to profit from a positive earnings surprise is to predict which companies will beat the Street before it happens.

#-ad_banner-#As you can see in the case of Amazon, this can be very profitable. However, it’s also a tricky move to pull off. It’s difficult to predict which companies will beat expectations. After all, you’re going up against the predictions of the world’s most successful and well-informed investment institutions.

Even if you’re right, it’s also difficult to predict how the Street will react to a report. But don’t worry, I have a better way to profit from a positive earnings surprise.

Not only is it less risky than predicting which companies will beat expectations, but it can also be more profitable. I like to call it one of Wall Street’s best kept secrets.

How I Know Which Stocks Will Keep Going Up
The Post-Earnings-Announcement Drift (PEAD) is one of Wall Street’s best-kept secrets.

It is the tendency for a stock’s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (or even several months) following an earnings announcement. Take a look at the chart of return distributions below.

Even better, this is the perfect time to profit from the PEAD. Third-quarter earnings season was a smash hit. According to data from Zacks Investment Research, earnings are up 7.6% from last year on 7.2% revenue growth. That helped 73% of S&P 500 companies beat earnings expectations.

Based on the PEAD, I am expecting many of those stocks to outperform the S&P 500 over the next few weeks and months. From that group, here are 7 positive earnings surprises that should benefit the most from the PEAD.

Name Ticker Earnings Surprise
Amazon AMZN 5,100%
Apple AAPL 11%
Facebook FB 23%
Google GOOGL 14%
Microsoft MSFT 17%
Paypal PYPL 5%
Visa V 6%

From the list, I have chosen to highlight Amazon and Apple because of their projected earnings growth in 2020.

Amazon delivered one of the best earnings surprises of the third quarter and saw an immediate price jump. That’s great for current shareholders. But the PEAD also tells me that Amazon has a high probability of outperforming the S&P 500 in the next few months. Amazon shares should also get plenty of support from earnings, which are expected to grow 92% in 2020 and hit a new all-time high.

Apple (Nasdaq: AAPL) kept up its winning tradition with another great quarter. Earnings of $2.07 beat expectations by 11%. That nice surprise should fuel shares of Apple for the next few months, potentially to a new all-time high.

Looking forward, I am expecting more good news from Apple. The company has a history of positive surprises, beating expectations in each of the last four quarters by an average of 6.4%. With anticipation of the iPhone X building ahead of the holidays, analysts are expecting outsized earnings growth of 21% in 2020. That could make Apple the first $1 trillion company on the Nasdaq.

Risks To Consider: Beating earnings estimates can increase expectations and make it harder to impress the Street in future quarters. Stocks with a history of beating earnings estimates can also fall sharply if they miss expectations.

Action To Take: These seven stocks delivered some of the best third-quarter results in the S&P 500. According to history, this tells me they should outperform the index in the next six to twelve weeks. Buy any of these seven stocks right now, hold for the next six months and look to beat the market.

Editor’s Note: Introducing our top 10 stocks for 2020… and beyond. Should you wait to buy these stocks until after Thanksgiving? You won’t believe the answer. Click here.

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