Amazon turns weak on soft Q1-2017 rev outlook

Last week, e-commerce giant Amazon.Com Inc (NASDAQ: AMZN) reported 22.4% and 55.4% increase in y-o-y revenue and net income, respectively, for fiscal 2016 fourth-quarter.

However, the investors were expecting much more from Amazon, which had announced a record holiday season. The disappointment triggered a sell off leading to a fall in the share price to a low of $803.90, from a high of $842.35 on Thursday last week.

We expect the downtrend to sustain in the short-term due to the following reasons.

The Seattle, Washington-based company reported fiscal 2016 fourth-quarter net income of $749 million or $1.54 per share on revenues of $43.75 billion, compared with $482 million or $1 per share on revenues of $35.75 billion in the corresponding period last year. The Wall Street analysts anticipated Amazon to report earnings of $1.35 per share on revenues of $44.68 billion.

Wochit Business

The revenue did not meet analysts’ estimates. However, it was not the only concern for the investors. In its international e-commerce business, Amazon reported a widened net loss of $487 million in Q4-2016, from a net loss of $108 million in the corresponding quarter last year. The gross margin has decreased to 2.9% in the recent quarter, from 3.1% in the same period last year.

The company also gave unimpressive fiscal 2017 first-quarter guidance. Amazon stated that it expects first-quarter revenue in the range of $33.25 billion to $36.75 billion. These figures, if achieved, will translate to a growth of between 14% and 23%, compared to the first quarter of fiscal 2016. However, the lower of guidance still falls short of market’s expectation of $35.95 billion.

Amazon claims that it is now offering about 50 million items with two-day shipping, up 73% from 2015. While this looks impressive, Walmart announced last week that it would begin offering two million items with free two-day shipping, provided the value of the order is above $35.

The counterfeit products sold on the platform have created legal pressure on the company. It is yet to affect the company financially. However, investors are certainly concerned about the rise in the sale of counterfeit products.

Having failed to consolidate above the level of 830, the stock of Amazon has started declining towards the next major support (S1) at 760. The stochastic oscillator is yet to complete its downtrend and is still pointing downwards. This indicates that the stock would decline further and retest S1.

So, it is prudent to purchase a low or below contract to gain from the downtrend in the stock of Amazon. The contract should be bought only if the stock trades near 810. While purchasing the put option equivalent from a suitable broker, a trader should ideally select February 14th as the contract expiry date.

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