Before Amazon Q3 Earnings, Our Best Idea Is To Do Nothing

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The Tooth Fairy Has Been Busy

Since maybe 2014-15, Amazon (NASDAQ:AMZN) has operated on the basis that the AWS line of business generates enough cashflow to fund the growth of the retailer side of the business. A quick look at Amazon financial statements right now says that the rules of the game at Amazon have changed.

Revenue growth is slowing, EBITDA margins are declining and cashflow margins have been negative and getting more so for some time now. In addition the net cash balance is dwindling.

Not pretty.

The valuation reflects that. No problem to buy AMZN on negative cashflows when the company was growing like a weed. Not so compelling now.

Let’s take a look at the stock chart. (You can open a full page version of this chart, here.)

The chart is more bullish than one might expect from the fundamentals. From Q3 2017 the stock puts in a Wave 1 up, retracing back into a 61.8% Wave 2 low at the end of 2018 when the Fed last tried to raise rates. Then a Wave 3 up peaking at the 2.236 Fib extension of Wave 1 in mid 2021. (Just as Jeff Bezos quit!). A deep Wave 4 has followed which thus far bottomed in June this year right around those Wave 1 highs. Since then the stock has attempted a Wave 5 up, putting in a 1-2 smaller degree up then down move. On technicals? That’s not a bad bullish setup.

On fundamentals? Urgh.

So, conclusion? Do nothing. Hold rating. Plenty of upside ahead if it starts moving upwards.

Cestrian Capital Research, Inc – 27 October 2022.