What Will Amazon Do Post-Earnings?

With shares of Amazon (NASDAQ:AMZN) trading around $364, is AMZN an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Amazon serves its customers through its retail websites and focus on selection, price, and convenience. The company also manufactures and sells Kindle devices. Amazon offers programs that enable sellers to sell their products on the company’s websites, including the sellers’ own branded websites, and fulfill orders through them. Amazon also provides platforms that allow authors, musicians, filmmakers, app developers, and others to publish and sell content. Online commerce has been on the rise because of the convenience, efficiency, and relatively low prices offered.

Amazon shares fell up to 9.4 percent Thursday as continued concerns about the company’s spending habits outweighed the higher revenue possible from raising the price of its popular Prime membership. Investors’ faith in Amazon has relied in part on consistent sale gains fueling the company’s lavish spending on warehouse construction and secretive internal projects that it has indicated will yield bigger returns in the future. In the fourth-quarter, Amazon’s revenue rose 20 percent — but so did the company’s operating expenses.

In the end, the company’s results failed to match Wall Street projections. Along with its results, however, Amazon also said it could lift the $79 annual fee for its popular Prime two-day shipping service by $20 to $40. Doing so could add between $500 million and $1 billion in revenue, with no added expense, analysts said. ”While the increase in Prime pricing appears to be a positive for margin in the near term,” J.P. Morgan analyst Doug Anmuth said, “we believe Amazon is likely to re-invest some of the additional shipping revenue to increase capacity.”

T = Technicals on the Stock Chart Are Mixed

Amazon stock has been exploding to the upside in the last several years. However, the stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Amazon is trading between its rising key averages which signal neutral price action in the near-term.

AMZN

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Amazon options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Amazon options

31.14%

10%

8%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

February Options

Average

Average

March Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Amazon’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Amazon look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

137.32%

-85.00%

-150.00%

-35.71%

Revenue Growth (Y-O-Y)

20.31%

19.23%

22.36%

21.88%

Earnings Reaction

-9.56%*

9.38%

2.83%

-7.24%

Amazon has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Amazon’s recent earnings announcements.

* As of this writing

P = Average Relative Performance Versus Peers and Sector

How has Amazon stock done relative to its peers, eBay (NASDAQ:EBAY), Barnes & Noble (NYSE:BKS), Overstock (NASDAQ:OSTK), and sector?

Amazon

eBay

Barnes & Noble

Overstock

Sector

Year-to-Date Return

-8.30%

-2.82%

-9.50%

-30.60%

-5.87%

Amazon has been an average relative performer, year-to-date.

Conclusion

Amazon is one of the largest Internet commerce companies in the world, and it aims to serve the needs of consumers, companies, and entrepreneurs around the globe. The company’s shares fell up to 9.4 percent Thursday as continued concerns about the company’s spending habits outweighed the higher revenue possible from raising the price of its popular Prime membership. The stock has been flying higher in recent years, but is currently pulling back. Over the last four quarters, earnings and revenues have been rising. However, investors have had conflicting feelings about recent earnings announcements. Relative to its peers and sector, Amazon has been an average performer year-to-date. WAIT AND SEE what Amazon does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More From Wall St. Cheat Sheet: