Amazon (AMZN) Pre-Earnings Analysis:
Amazon is set to report Q3 earnings on Thursday October 26th, 2023. Analysts are much more aggressive on their projections this quarter as they raised Amazon’s estimated EPS (Earnings per share) to .58, compared to last quarters .34 (Nasdaq). The strong projections are justified because Amazon ended up reporting .63 in earnings per share last quarter, doubling expectations. Overall net revenue last quarter also jumped by 11%, with the biggest asset being Amazon Web Services, also known as AWS. While e-commerce sales are important for revenue, most of the focus this earnings will still be around AWS, as that is Amazon proprietary product. Google’s and Microsoft’s recent earnings didn’t give much insight on how cloud computing and web services are doing. Google reported a decline, while Microsoft reported a 27% jump in revenue, so Amazon’s projections are mixed. Amazon also owns a piece of Rivian, which widened its losses significantly in recent quarters, so that could spell trouble for their profitability. Lastly, the company recently spent money on artificial intelligence, and while long term that’ could be a good thing, the short term may cost them in profitability.
Option chain analysis:
Amazon’s option chain for the week of earnings is strongly bearish, with most of capital flowing into in the money puts. The call chain is active, but in the money calls have about a quarter of the open interest that puts have. Implied volatility is trading about 120% for ATM options, so markets expect about a $9.00 move up or down. If Amazon doesn’t move at least $9 after earnings, premiums will be crushed on both sides for options expiring on the 27th of October. Looking further out on the expiration calendar, November 17th options have are split in terms of direction, but one stand out options is the 120C, which has 153,000 in premium.