Amazon (NASDAQ:AMZN) will report its Q3 financial results on October 27. However, given the ongoing foreign exchange headwind, Wedbush analyst Michael Pachter believes that AMZN top line could come in near the lower end of its previous guidance and miss his revenue estimate.
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During the Q2 conference call, Amazon announced that its Q3 net sales could come in the range of $125 billion to $130 billion in Q3. This guidance reflects a growth of 13% to 17% and includes a negative impact of approximately 390 basis points from negative currency rates.
Pachter stated, “The dollar strengthened throughout Q3, likely causing a more substantial headwind than management expected, leading us to believe that incremental losses stemming from foreign currency translation could be more than $1 billion.”
Given the higher-than-projected currency headwinds, the analyst expects Amazon’s Q3 revenues to come in below his estimate of $130 billion. Meanwhile, the consensus estimate stands at $127.8 billion.
Investors should note that the foreign exchange headwind came in higher than the amount management had projected in Q2. For instance, AMZN management expected currency headwinds to have a negative impact of 200 basis points on its top line. However, it had a much larger effect of approximately 320 basis points.
Besides for currency headwinds, an inflationary cost environment, fulfillment network productivity, and fixed cost deleverage (all of which resulted in an incremental cost of $4 billion in Q2) will pressure its Q3 earnings. Analysts expect AMZN to post earnings of $0.22 a share in Q3.
What is the Prediction for Amazon Stock?
AMZN stock has underperformed this year, with sales and cost headwinds taking a toll on it. It has declined by about 28% year-to-date, compared to about a 21% decline in the S&P 500 Index (SPX). Looking ahead, Wall Street is upbeat about AMZN stock. It has received 34 Buys and one Hold recommendation for a Strong Buy consensus rating.
Further, analysts’ average price target of $170 implies 41.9% upside potential.
AMZN faces easier year-over-year comparisons in coming quarters, which will ease the pressure on its top-line growth rate. Further, the strength in its high-margin businesses like AWS (Amazon Web Services – its cloud offering) and advertising and cost reduction augur well for long-term growth. Also, an increasing number of Prime members will support its subscription revenue.
While analysts are bullish about AMZN stock, hedge funds sold 5.7M shares last quarter. Given the near-term headwinds and a negative signal from hedge funds, AMZN stock sports a Neutral Smart Score of seven out of 10.
Bottom Line
Amazon’s long-term prospects remain strong. Its leadership position in e-commerce and the cloud bode well for growth. However, cost and currency headwinds and an uncertain economic trajectory could continue to pressure its near-term financials.
