Trading Amazon Stock Post Q2 Earnings Beat
While heavyweight tech names such as Apple, Alphabet and Microsoft have reported a gloomy second quarter, Amazon has bucked the trend with results that have beat analysts' expectations.
Has this restored faith in the company whose stock price fell 45% from November 2021 to June 2022? In this article, we explore the Amazon earnings report and how to trade the stock.
|Symbol for Invest.MT5 Account:||AMZN|
|Date of Idea:||9 August 2022|
|Time Line:||1 - 6 months|
|Position Size for Invest.MT5 Account:||Max 5%|
- The Invest.MT5 account allows you to buy real stocks and shares from 15 of the largest stock exchanges in the world.
All trading is high risk and you can lose more than you risk on a trade. Never invest more than you can afford to lose as some trades will lose and some trades will win. Start small to understand your own risk tolerance levels or practice on a demo account first to build your knowledge before investing.
Amazon’s Second Quarter Earnings Report
In Amazon’s most recent earnings report, the company posted better than expected revenue for the second quarter and provided an optimistic outlook for the next few quarters.
Revenue came in at $121.23 billion against an expected $119.09 billion. Amazon Web Services, the company’s cloud offering, reported revenues of $19.7 billion vs $19.56 billion expected. Advertising revenue came in at $8.76 billion vs $8.56 billion expected.
Overall, revenue growth of 7% in the second quarter beat analyst expectations. Amazon also stated that it is forecasting third-quarter revenue between $125 billion and $130 billion. This represents a growth of 13% to 17% which is much higher than what analysts were expecting.
In Amazon’s earnings release, CEO Andy Jassy stated: “Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network.”
Jassy also stated: “We’re also seeing revenue accelerate as we continue to make Prime even better for members, both investing in faster shipping speeds, and adding unique benefits such as free delivery from Grubhub for a year, exclusive access to NFL Thursday Night Football games starting September 15, and releasing the highly anticipated series The Lord of the Rings: The Rings of Power on September 2.”
Amazon Acquires Robotics Company iRobot
Last week Amazon announced the purchase of robotics company iRobot which is known for the Roomba robot vacuum cleaners. The acquisition price was 20% higher than the market price but still more than 70% below the all-time high share price for iRobot.
While these are products that Amazon can instantly add to its range, the acquisition highlights that Amazon’s next big thing may come from robotics. Essentially, the acquisition may have been for the expertise of the robotics company.
This may get Amazon one step closer to providing a complete, fully automated smart home product range. Amazon has acquired a smart doorbell company, a home security company and a home Wi-Fi company in the past few years.
No forward guidance for the acquisition has been provided yet but there could be some interesting new products in Amazon’s line-up in the future. However, as the market may now be pricing this in, if there are no announcements it could affect the stock price by moving lower.
Another factor to take into consideration is the fact most of the other big tech companies reported a gloomier outlook. This type of sentiment could weigh on all tech stocks including Amazon.
Amazon Stock Forecast - What do the Analysts Say?
According to analysts polled by TipRanks for an Amazon stock forecast in the past 3 months, there are currently 39 buy, 1 hold and 0 sell ratings on the stock. The highest price level for an Amazon stock forecast is $270.00 with the lowest price target at $118.00.
The average price target for an Amazon stock forecast is $176.04 which represents more than a 25% upside from current levels, at the time of writing.
Source: TipRanks, 9 Aug 2022
An Example Trading Idea for the Amazon Stock Price
An example trading idea for the Amazon share price could be as follows:
- Buy the stock at $130.00 to allow for current market volatility.
- Target just below the average analyst price target at $176.00.
- Keep your risk small at a maximum of 5% of your total account.
- Time Line = 1 – 6 months
- If you buy 10 Amazon shares:
- If target is reached = $460.00 potential profit ($176.00 - $130.00 *10 shares).
It’s wise to remember that the share price is unlikely to go up in a straight line and it may even go much further down before it rises, especially considering the recent sell-off in global stock markets.
Therefore, be sure to exercise good risk management which is one of the most important aspects of trading successfully. You should always know how much you could potentially lose on a trade and the risks involved.
Another factor to consider is the commission which can eat into your profits. With the Admirals Invest.MT5 account you can buy US stocks from $0.02 per share. This means buying 10 shares in Amazon stock would result in a commission of $0.20 ($0.02 * 10 shares).
There is a low minimum transaction fee of $1. So, the example trading idea above would result in a commission of just $1 overall!
How to Buy Amazon Stock in 4 Steps
With Admirals, you can buy shares in companies like Amazon with a low commission of just $0.02 per share and a low minimum commission of just $1 on US stocks.
- Open an account with Admirals to access the Trader’s Room.
- Click on Trade on one of your live or demo accounts to open the web platform.
- Search for your stock at the bottom of the Market Watch window and drag the symbol onto the chart.
- Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.
Source: Admirals MetaTrader 5 Web. Past performance is not a reliable indicator of future results, or future performance.
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Do You See the Amazon Stock Price Moving Differently?
Remember that all analytics and trading ideas are based on the personal view and experience of the author.
If you believe there is a higher chance Amazon's share price will move lower, then you can also trade short from a CFD (Contracts for Difference) trading account which Admirals also provide.
This means you can trade long and short to potentially profit from rising and falling stock prices. Learn more about CFDs in this How to Trade CFDs article.
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