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Stellar Amazon Earnings for Q3 2020

Posted: Friday, October 30th, 2020

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One of the much-awaited reports this October was the Amazon earnings release. The e-commerce giant published yesterday the Q3 2020 earnings, and they exceeded every expectation.

Sure, the Amazon earnings for the quarter compared to the same quarter a year ago. Considering that a pandemic hit the world in the meantime and that Amazon benefited from it, the comparison may not be relevant. More precisely, it would be interesting to see Amazon earnings one year from now, comparing similar situations.

Like all tech companies, Amazon strived during the pandemic. More than six months into the coronavirus crisis and people still work remotely, deliveries go through the rough, and new lockdowns in Europe add to a continuation of such trends.

Amazon Earnings

Q3 2020 Amazon Earnings Highlights

Net income tripled when compared to the third quarter of 2019. It reached $6.2 billion from $2.1 billion, reflecting the terrific shift in consumer behavior generated by the COVID-19 pandemic.

Net sales jumped 37%, and operating cash flow increased by 56%. While sales growth is an important metric for a retailer, the bottom line (i.e., net income) matters the most. Due to the sharp increase in net income, earnings per diluted share almost tripled too. Let us not forget that Amazon is a company that increased the minimum wage in America to $15 and challenged other employers to do the same. However, despite the resulting higher labor costs, the company manage to offset the increase by stronger performance.

Amazon Web Services (AWS), long viewed as the “crown jewel,” lost momentum in the last years. Strong competition from Microsoft Azure or other players entering the cloud business affected the results. Yet, the Q3 2020 Amazon earnings report shows a strong comeback in the customer momentum.

October 13-14 brought the Amazon Prime Day event in nineteen countries. The shopping festival was a terrific success, with Prime members saving over $1.4 billion, and third-party sellers surpassed $3.5 billion in sales.

Amazon Future Guidance

Before anything, at yesterday’s earnings call, Amazon stressed how difficult it is to predict forward-looking statements under the current environment. Yet, it sees sales exceeding $112 billion for Q4 2020 and anticipates a favorable impact from foreign exchange rates. It also assumes $4 billion of costs related to the coronavirus pandemic, and its impact will likely affect operating income in the last quarter of the fiscal year.

Despite the stellar results, the Amazon share price trades lower, eyeing the $3,000 pivotal level. On the one hand, investors see Amazon as one of the most overvalued companies, with sky-high valuations that already priced-in such results as the ones delivered. On the other hand, with only a few days ahead of the U.S. elections, investors may have decided to take some risk off the table ahead of such an important event.

All in all, a stellar performance by Amazon in the third quarter of its fiscal year. If it manages to keep up with the momentum, investors will have a hard time arguing with a higher Amazon share price.

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