Company / Analytics

Analytics, 03 February 2021

Amazon and Alibaba - top earnings estimates

Two of the biggest names in e-commerce – Amazon and Alibaba reported earnings Tuesday, with new records. Amazon’s Q4 sales topped $100 billion for the first time, thanks to pandemic-driven shifts to e-commerce and cloud computing.

Meanwhile, Alibaba’s earnings beat analyst expectations with e-commerce sales up 37% while cloud business became profitable for the first time even as the company founder Jack Ma’s empire faces regulatory scrutiny.

Amazon Q4 Earnings; CEO Jeff Bezos to step down

Amazon reported record-setting Q4 results, supported by a pandemic-driven surge in e-commerce sales during the holiday season.

Amazon also announced that its founder and CEO Jeff Bezos will step down from his role and transition to the executive chair of the company as of the third quarter of 2021. Andy Jassy, who currently leads Amazon Web Services, is set to take over as CEO of the company.

Here’s what the company reported in its fiscal fourth-quarter results, compared to consensus estimates compiled by Bloomberg:

For the first time in its history, Amazon sales topped $100 billion in revenue, joining Apple which also crossed the same mark last week. Amazon said it expects to remain above the new threshold in the current quarter, anticipating first-quarter net sales will come in between $100 billion and $106 billion.

Sales were boosted by the company’s core e-commerce portion as well as sales from Amazon’s blockbuster Prime Day. In early December, Amazon said that the 2020 holiday shopping was its biggest yet, as customers increasingly purchased goods while restrictions remained in place on travel, dining out, and other leisure activities.

While Amazon did not break out exact gross merchandise value across the platform for Prime Day, Black Friday, and Cyber Monday, the company did note that its third-party sellers grew sales by about 60% year-over-year during each of these events.

Outside of e-commerce, Amazon’s other products also performed well in the quarter, similarly aided by pandemic-related restrictions. Amazon Web Services (AWS) grew quarterly sales 28% to $12.74 billion. That year-over-year growth rate held roughly steady versus the third quarter but slowed over 2019, as the segment matures as the U.S. market share leader in cloud web hosting. AWS’s operating income grew even more strongly, jumping 37% to nearly $3.6 billion.

Amazon managed to grow profits strongly across the company even after vowing to funnel even more capital back into the business to sustain its growth and increase safety for its workers during the pandemic. Company-wide operating income grew 77% to $6.87 billion in the fourth quarter, handily topping estimates for $4.47 billion. In October, Amazon said its fourth-quarter operating income would come in between $1.0 billion and $4.5 billion when factoring in costs of about $4.0 billion in costs related to COVID-19. Amazon said operating income will likely come in between $3.0 billion and $6.5 billion for the current quarter, including costs of about $2 billion related to COVID-19.

Amazon Outlook and analyst recommendations

While some analysts note that Amazon may be hard-pressed to top its 2020 performance, as consumer spending broadens back out as pandemic-era lockdown restrictions ease, others remain bullish that Amazon will continue growing on strong e-commerce and public cloud trends where the company is well-positioned as the clear leader.

JPMorgan analyst Doug Anmuth noted this week that the three biggest points to watch for investors in Amazon this year will be the magnitude of any revenue deceleration in 2021, the extent to which Amazon’s virus-related expenses extend into this year, and the strength of AWS growth. The current consensus among 48 investment analysts tracking Amazon recommends buying Amazon stock. The 44 analysts offering 12-month price forecasts for Amazon.com Inc have a median target of 3,800.00, with a high estimate of 4,500.00 and a low estimate of 3,048.00. The median estimate represents a +12.34% increase from the last price of 3,382.62, according to CNN Business.

How did Amazon shares move?

Shares of Amazon have increased 66% over the past year, and 4% since last reporting earnings results in late October. Shares fluctuated between slight gains and losses in late trading, closing 1.11% high at $3,380.00 on Tuesday.

Alibaba Earnings: E-commerce sales up 37% and cloud business profitable for the first time

Alibaba Group announced Q3 results for the period ending December 31st that saw the e-commerce giant record a revenue increase of 37% year over year and beat on earnings estimates. For the first time, the company’s cloud unit achieved profitability.

The Q3 results beat Wall Street analyst consensus estimates as shown below on data compiled by Bloomberg:

Alibaba’s cloud computing revenue for Alibaba’s fiscal third quarter came in at 16.11 billion yuan, a 50% year-on-year rise, primarily driven by “robust growth in revenue from customers in the Internet and retail industries and the public sector,” according to a statement from the company.

Though this is still below the 16.69 billion yuan expected, according to a StreetAccount consensus estimate, the cloud business milestone will be welcomed by investors who have put great importance on cloud computing to drive Alibaba’s future growth. Current chairman and CEO Daniel Zhang told CNBC in a 2018 interview that cloud computing would be Alibaba’s “main business” in the future.

The better-than-expected earnings came even as Chinese anti-trust regulators have been cracking down on big tech and finance companies like Alibaba and JD.com. During the earnings release, Alibaba Group acknowledged it “received a notice of an investigation from the State Administration for Market Regulation (“SAMR”)” that it began an antimonopoly investigation, noting that “the investigation is ongoing and we are fully cooperating with the SAMR. We have established a special task force with leaders from our relevant business units to conduct internal reviews. We will continue to actively communicate with the SAMR on compliance with regulatory requirements,” said the statement.

The company also addressed its affiliate Ant Group, which was set to go public last year, before regulators scrapped the $35 billion IPO following remarks from billionaire Jack Ma in which he criticized China’s banking system.

“Due to recent significant changes in the Fintech regulatory environment in China, Ant Group is in the process of developing its rectification plan, which will need to go through the relevant regulatory procedures. Therefore, Ant Group’s business prospects and IPO plans are subject to substantial uncertainties,” said the company statement.

How did Alibaba stock move?

In December Alibaba’s stock traded as low as $211, but has since then rallied. Shares rose more than 4% on Monday, trading around $264 ahead of its earnings announcement on Tuesday. The stock was trading at 261.00 Hong Kong Dollars at the time of writing.

The current consensus among 52 polled investment analysts is to buy stock in Alibaba Group. And 49 analysts offering 12-month price forecasts for Alibaba Group Holding Ltd have a median target of 329.55, with a high estimate of 386.95 and a low estimate of 249.97. The median estimate represents a +29.38% increase from the last price of 254.71, according to CNN Business.

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