What to look for when Amazon.com (AMZN) reports Q4 earnings?

Amazon.com Inc. (NASDAQ: AMZN) is slated to report its fourth-quarter 2019 earnings results on Thursday after the market closes. The bottom line will be hurt by higher costs and expenses while the top line will be benefited by the holiday season sales as well as the transition of Prime from two days to one day.

The company could turn beneficial by the dynamic one-day shipping rollout that could accelerate the top line above its forecast range. The one-day shipping is likely to increase its holiday season sales. However, this could also increase the costs related to the shipping that could lower the profitability.

The company is expected to take a $1.5 billion penalty for the cost of shipping in Q4. The costs include transportation costs, the cost of expanding its transportation capacity, adding additional poles, shifts in warehouses, the cost of deploying inventory closer to customers, and tangential costs.

Amazon has been leading the way in the lucrative cloud market that could generate steady cash flows each year. The company continues to invest in its cloud computing business, Amazon Web Service. Also, the company is investing in salesforce due to the addition of thousands of new products under its hood as well as the geographical expansion.

Analysts expect the company’s earnings to drop by 33.30% to $4.03 per share while revenue will jump by 18.80% to $85.96 billion for the fourth quarter. The company has remained neutral as it beat analysts’ expectations twice in the past four quarters while it missed consensus twice. The majority of the analysts recommended a “buy” rating with an average price target of $2,185.98.

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For the third quarter, Amazon posted a 28% dip in earnings due to higher costs and expenses despite a 24% jump in the top line. All three business segments witnessed double-digit sales growth, with Amazon Web Services leading with a 35% annual increase. Other, the reporting category that includes advertising, registered a 44% revenue growth.

For the fourth quarter, the management expects sales to be in the range of $80.0 billion to $86.5 billion and operating income between $1.2 billion and $2.9 billion, which represents a marked reduction from $3.8 billion reported in the prior-year period.

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