Retail giant Amazon beats Q2 expectations – how can we trade it?

August 05, 2020 13:30

Four of the big 5 tech companies, also known as the 'FAANG' of Facebook, Apple, Amazon and Google, reported their Q2/2020 earnings last Thursday.

All four beat expectations, even though they show a dip due to the 'Corona crisis' with Amazon clearly leading the pack, indicating that the recent and massive rally in Amazon, which saw a push higher in its stock price from its March lows to new all-time highs of more than 100%, was no fluke.

Amazon beats expectations with revenue of nearly $89 billion

For Q2/2020, Amazon reported net sales of $88.9 billion against an expected $81.24 billion and a massive Earnings per Share (EPS) of $10.30 against an expected $1.46.

When taking a deeper look and using common sense, the report of a double-digit revenue growth year over year seems not that surprising.

In fact, Amazon was caught off guard by an influx of online orders during the Coronavirus lockdown, which resulted in issues from a logistical perspective and thus helps to explain the need of creating 175,000 new jobs since March.

What certainly needs to be seen is how current developments in the global economy, such as recession fears and job uncertainties among retail customers, affect their consumer behaviour. Common sense gives us a clear answer: it will drop.

But Amazon seems well-positioned to counter such a development, e.g. thanks to its cloud-computing unit, Amazon Web Services (AWS).

While AWS reported revenues of $10.81 billion for Q2/2020, up 29% year over year, but down compared to 33% growth in Q1/2020, developments around the Corona lockdown and many companies shifting towards remote working solutions, it seems possible that AWS revenues could deliver an important revenue stream in the years to come, even though Amazon faces strong competition from Microsoft and Google.

How to trade the Amazon CFD/#AMZN in this environment?

In general, we remain clearly bullish on Amazon, even though we consider the current stock price relatively high compared to its "competition" and prefer a Long setup after a correction from a risk-reward perspective.

In regards to its stock price, we'd like to take a deeper look: when looking at the Price-Earnings ratio, Amazon has a P/E ratio of more than 150 compared to an aggregate P/E ratio in the internet retail industry of around 18 to 19.

Even though one might argue that Amazon plays in its own league, a corrective move, especially in a more volatile and risk-averse Equity environment, would also hit a giant like Amazon.

A corrective move should be expected to accelerate with a break below 2,900/30 USD with a potential target and long trigger being found around 2,450/500 USD.

In general, the mode in #AMZN should be considered bullish on a daily time-frame as long as the stock trades above its SMA(200):

Source: Admiral Markets MT5 with MT5-SE Add-on #AMZN CFD Daily chart (between April 12, 2019, to August 3, 2020). Accessed: August 3, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015 the value of #AMZN increased by 117.78%, in 2016, it increased by 10.95%, in 2017, it increased by 55.96%, in 2018, it increased by 28.43%, in 2019, it increased by 23.03%, meaning that after five years, it was up by 495.41%.

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