Option Trade 
Amazon.com, Inc. (NASDAQ:AMZN) Calls 
Wednesday, July 22, 2015

**OPTION TRADE: Buy the AMZN Aug 2015 540.000 call (AMZN150821C00540000) at approximately $9.00. Place a protective stop loss at $3.60, and a pre-determined sell at $18.00.

by Ian Harvey

July 22, 2015

Introduction

Amazon.com, Inc. (NASDAQ: AMZN), an e-commerce company that sells a range of products and services through its various owned and affiliated Websites, will be posting its Q215 quarterly earnings results on Thursday, July 23rd. Analysts expect Amazon.com to post earnings of ($0.16) per share and revenue of $22.35 billion for the quarter.

Amazon.com, Inc. shares have risen sharply on each of the last two earnings release, and are up 11% in the past week, ahead of second quarter (2Q) financial results.

There are several positive developments that support continued growth in the core retail and Amazon Web Service (AWS) businesses, but also counter that investment will likely continue apace in light of fierce competitive dynamics and market opportunities that increase capital needs.

Most analysts remain positive on Amazon’s anchor offerings of prime, AWS and the long term opportunity for the company. They anticipate 2QFY15 results and guidance will be positive.

It should be noted that prime adoption continues and Prime Now is available in seven US cities and recently in London. The Channel Advisor data supports around 26% of North American electronics & general merchandise (EGM) growth for the period, compared to firm’s estimate of 24%.

Technical Details

Amazon.com closed at $488.10 on Tuesday, down 0.02%.

Amazon.com has a 1-year low of $284.00 and a 1-year high of $493.20.

The stock’s 50-day moving average is $440.05 and its 200-day moving average is $391.75.

The company’s market cap is $227.30 billion.

Earnings

Previous Earnings

Amazon.com last posted its quarterly earnings results on Thursday, April 23rd. The e-commerce giant reported ($0.12) earnings per share for the quarter, meeting the analysts’ consensus estimate of ($0.12). The company had revenue of $22.72 billion for the quarter.

During the same quarter last year, the company posted $0.23 earnings per share. Amazon.com’s revenue was up 15.1% compared to the same quarter last year. On average, analysts expect Amazon.com to post $0.47 EPS for the current fiscal year and $2.88 EPS for the next fiscal year.

Future Earnings

The historic highs hit by Amazon stock suggest profit margin growth in the second quarter. Analysts expect the company will report total revenue of $22.37 billion for 2Q15. That would be a YoY (year-over-year) increase of 15.7% over 2Q14.

The company is guiding for a revenue range of between $20.6 billion and $22.8 billion, which translates to growth of between 7% and 18%.

Amazon’s YoY revenue growth was 15% in 1Q15, at the high end of its growth estimates of between 6% and 16%. It’s GAAP (generally accepted accounting principles) operating income came in at $255 million, way higher than the -$450 million to $50 million range that the company had guided for earlier. Amazon’s 1Q15 revenue growth rate was particularly impressive considering the strong US dollar (UUP) shaved 7% off the overall revenue growth rate.

Amazon now expects its revenue to grow at a YoY rate of between 7% and 18% in 2Q15, as the chart above shows. Amazon expects currency headwinds to affect revenue growth by up to 7.5% in 2Q15.

Why Amazon?

FX -- Google's (GOOGL) report clearly showed the important role FX is playing at the moment. Amazon was hit in the last quarter and will no doubt be affected this quarter as well. But since it currently has much lower exposure to international markets, the impact on its overall results is likely to be smaller.

International/Domestic Mix -- The other way of looking at this is the mix of international versus domestic business, because a growing international mix will come with a growing FX impact. Also, since the domestic business is mature it will yield higher margins, while the international business will be accompanied by expansion costs including infrastructure, headcount and inventory.

Prime Member Growth -- Amazon didn't mention Prime member details in the last quarter but Consumer Intelligence Research Partners (CIRP) published a report, according to which, 42% of U.S. customers were Prime members. The report also said that Prime members spend around $1,100 a year compared to $700 for non-Prime members.

AWS -- Last quarter, AWS drove share prices as this business generates significantly higher margins.

FXCash Flow/Capex -- Cash flow numbers are important for all retailers. In Amazon's case, it is significant because its investment needs are very high; both for international expansion and cloud infrastructure builds. The company burnt cash in the last quarter, which is not terribly unusual after the strong fourth quarter. It should do better this quarter.

Other Significant Positives

Prime Day

Amazon launched its first ever Prime Day on July 15, offering exclusive lightning deals to its Prime members for a day. The event was reportedly a huge success. It surpassed profits realized from last year’s Black Friday, recording 398 items ordered per second. The company reported 266% growth in worldwide orders compared with the previous year’s Black Friday. And it sold more devices than ever before in a single day. Also, the number of new members trying to enroll for Prime membership that day was the greatest it’s been in the company’s history.

The Importance of Amazon Prime

Amazon Prime is a crucial driver of Amazon’s sales growth. Prime members are thought to have numbered ~44 million in the US as of June 2015, according to a report from Consumer Intelligence Research Partners. This includes ~3 million new members added during the second quarter of this year.

Analysts Opinions

Amazon.com ‘s stock had its “buy” rating reiterated by investment analysts at Cantor Fitzgerald in a note issued to investors on Tuesday.

Research analysts at Goldman Sachs lifted their price target on shares of Amazon.com from $510.00 to $570.00 in a report released on Tuesday. The firm currently has a “buy” rating on the e-commerce giant’s stock. Goldman Sachs’ price target suggests a potential upside of 16.78% from the company’s current price.

Analysts at Cowen and Company upgraded shares of Amazon.com from a “market perform” rating to an “outperform” rating and raised their price target for the stock from $435.00 to $565.00 in a research note on Monday.

“It is anticipated that Amazon will dethrone Macy’s as the leading U.S. apparel retailer by 2017. Analyst John Blackledge reported that Cowen’s monthly retail tracker survey shows continued surges in apparel sales on Amazon.com as the company improves its selection and fulfillment capabilities. In the first half of 2015, Amazon’s U.S. apparel purchaser growth has accelerated 36% year-over-year, compared with 28% growth in the year-earlier period, according to Cowen. The growth was even larger among prime subscribers, coming in at 57%. Blackledge raised his price target on the stock to $565 from $435.”

Amazon.com‘s stock had its “buy” rating reiterated by equities researchers at Bank of America in a research report issued on Monday. They currently have a $535.00 price objective on the e-commerce giant’s stock, up from their previous price objective of $475.00. Bank of America’s price objective points to a potential upside of 9.61% from the company’s current price.

The company has also been the subject of a number of other research reports:-

• Analysts at Mizuho reiterated a “buy” rating on shares of Amazon.com in a research note on Tuesday.

• Analysts at B. Riley reiterated a “neutral” rating and set a $428.00 price target on shares of Amazon.com in a research note on Tuesday.

• Analysts at Sanford C. Bernstein reiterated an “outperform” rating and set a $600.00 price target on shares of Amazon.com in a research note on Monday.

• Analysts at Vetr downgraded shares of Amazon.com from a “hold” rating to a “sell” rating and set a $448.39 price target on the stock in a research note on Monday.

• Analysts at Wedbush upgraded shares of Amazon.com from a “neutral” rating to an “outperform” rating and raised their price target for the stock from $435.00 to $575.00 in a research note on Monday.

• Finally, analysts at Piper Jaffray reiterated a “buy” rating on shares of Amazon.com in a research note on Saturday.

• Analysts at Deutsche Bank reiterated a “buy” rating and set a $500.00 price target on shares of Amazon.com in a research note on Thursday.

• Finally, analysts at Oppenheimer reiterated a “buy” rating and set a $525.00 price target on shares of Amazon.com in a research note on Thursday.

The Street is mainly Bullish on Amazon stock. Out of 49 analysts who cover the stock, 34 suggest a Buy, while 14 recommend a Hold. The 12-month average target price stands at $493.06, implying upward potential of 2.1% over trading price of $483.46.

Conclusion

Amazon is the leader in the two markets it serves; eCommerce and IaaS. Both these markets are smoking hot, so there are a growing number of players that are, however, nowhere near Amazon in terms of scale and market position. Alibaba (BABA) is the only company with similar scale in eCommerce, but it doesn't operate in the U.S., so is less of a threat for Amazon (except in terms of its international expansion opportunities). These are big positives in themselves.

The company has devised a platform approach to grow sales; Prime and a growing number of devices on the ecommerce side and AWS infrastructure on the other. These plans appear to be going reasonably well.

But since growth opportunities abound, the company will continue to invest. As long as Amazon's operations are efficient and it can give us an idea about the payback period, the stock has every chance of soaring on the announcement.

Therefore, based on the facts above the following option trade is recommended…..

**OPTION TRADE: Buy the AMZN Aug 2015 540.000 call (AMZN150821C00540000) at approximately $9.00. Place a protective stop loss at $3.60, and a pre-determined sell at $18.00.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



Back to Stock Options Made Easy Home Page

Back to Option Trades from Option Trade – Amazon.com, Inc. (NASDAQ:AMZN) Calls - Wednesday, July 22, 2015



Get all the latest options news from
STOCK OPTIONS MADE EASY with our FREE newsletter


Enter Your Email Address

Enter Your First Name









Search Stock Options
Made Easy



Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style...

Whether you prefer to take a laid-back approach to your trading,

or to charge ahead in your options trading,

 Stock Options Made Easy Armchair Trader and Cut-to-the-Chase Trader Memberships put everything you need to succeed at your fingertips for just  $39 or $79 per month.






Subscribe to our FREE
newsletter for all the latest options news!


Enter Your Email Address

Enter Your First Name











Follow S_O_M_E on Twitter