Related Ticker: AMZN

• Amazon earnings for Q3 2015 are expected to be announced tomorrow (October 22).
• The focus will be on the prime day numbers and AWS financials.
• Expectations are sky-high, and sharp fluctuations in stock price are expected.

Flickr

Tech giant Amazon (AMZN) is expected to report its Q3 2015 earnings results tomorrow (Oct 22), after market close. Amazon had an eventful quarter since its previous earnings release that included announcements of new AWS products/services, the launch of an Etsy-like platform, massive discounts on prime day, new content partnership agreements, hiring part-time delivery drivers, and more.

Amazon reported excellent Q2 2015 results with an EPS $0.33 above consensus and revenues of $790M above consensus, driven largely by an impressive 81% year-over-year growth in AWS revenues. AWS's operating income hit a new peak of $391 million in Q2 2015, which is a staggering 508% year-over-year growth and 47% quarter-over-quarter growth. After Amazon had reported such impressive results, the company also hiked guidance above analysts’ expectations, and the company’s stock followed with an 18% surge right after the announcement. Analysts’ expectedly raised their price targets to an average of $642, which reflects a 12.5% upside from the current price, and increased revenue expectations to $24.9B for Q3 2015.

Amazon launched key initiatives to drive AWS growth

In light of the phenomenal results AWS reported in the previous quarter, Amazon announced some new initiatives in its recent re:Invent conference aimed at accelerating AWS growth. The company launched a big data analytics and visualization tool, QuickSight, that is targeted to compete with similar solutions from Tableau Software (DATA) and Qlik Technologies (QLIK). These two companies are currently AWS partners with very popular apps that help enterprises to better analyze large amounts of data stored on AWS. The new solution from Amazon is the company’s first attempt to penetrate the steaming big data software market that is currently dominated by pure-play SW providers like Tableau, Qlik, Splunk (SPLK) and big tech names like IBM (IBM), Oracle (ORCL) and HP (HPQ).

Another initiative Amazon launched was AWS IoT solutions that targets the emerging Internet of Things (‘IoT’) market and enables users to connect many devices to AWS and gather information in a secured, encrypted one-stop-shop for online data. The new IoT solution improves the IoT infrastructure and enables more developers to enter the market and opens up more potential usage cases.

Amazon steps up marketplace efforts

Beyond the AWS segment, Amazon seems to be accelerating its efforts in the marketplace segment with the new Etsy (ETSY)-like Handmade platform and the substantially discounted Prime Day that CFO Brian Olsavsky described in the previous earnings release as a great success: “We're thrilled with the results of Prime Day. It surpassed all of our expectations. Any metric we look at, everything was a huge success. Customers save millions. New Prime members signed up in higher rates than we've ever seen.” Amazon baked the Prime Day figures into its guidance, and investors are anxiously waiting to see the actual numbers.

AWS and Marketplace numbers could drive Amazon stock price following the earnings report

As shown in the chart below, Amazon’s stock price has soared almost 20% since the previous earnings release, while the S&P 500 yielded -3.5% in the same time. Amazon’s outperformance is driven by its exceptional AWS results and positive developments throughout the period that increased investors' expectations from the company. Market expectations will drive a sharp reaction in Amazon’s stock price after the earnings release. The post-earnings price movement could be highly volatile, and the direction of the movement depends heavily on Amazon’s AWS results and profitability, as well as the marketplace results in light of the successful prime day.

Source: Amazon stock price chart by amigobulls.com

These are the comparable figures to watch in this earnings:

Source:Amazon IR, Yahoo Finance, WSJ

Conclusion

After a tremendous earnings report in the previous quarter, Amazon earnings expectations, especially from AWS, are really high. The company continued to put efforts to drive AWS growth by introducing new products aimed to generate additional revenue from emerging new trends like IoT and data analytics, while continuing to announce new partnerships and alliances to support current AWS offerings. In the marketplace segment, Amazon had a very successful prime day. The market can’t wait to see the surprisingly good prime day figures that drove Amazon to boost Q3 revenue guidance. As expectations are high, investors should be prepared to experience sharp fluctuations in Amazon stock price, following the earnings announcement.