Amazon Fails Breakout After Revenue Warning

Amazon.com Inc. (AMZN) became the latest casualty of a tough earnings season on Friday, dropping more than 7.5% after missing Q2 2021 revenue expectations and issuing weak Q3 guidance. The e-commerce juggernaut earned $15.12 per-share, beating estimates by $2.88, while revenue grew 27.2% year-over-year to $113.08 billion, about $2 billion below consensus. Cloud services knocked it out of the park as usual, growing 37% year-over-year, while Prime purchases grew at the slowest pace in four quarters.

Another Post-COVID Hangover

The company detailed limp second quarter Prime growth, which prompted the third quarter warning, noting that folks emerging from the winter’s pandemic wave were spending more time traveling and engaging in other physical activities. Tough 2020 comparisons also drove the aggressive sell-the-news reaction because Amazon and other COVID beneficiaries booked historic market share gains at that time, depleting the pool of potential 2021 customers.

‘Peak growth’ has become a hot topic on Wall Street, with U.S. GDP easing after a torrid first half while inflation expectations settle back to earth. As a result, nervous shareholders have been selling strong second quarter earnings reports at the majority of last year’s big winners, understanding that year-over-year comparisons will be tougher going forward, at the same time that profit and revenue trajectories revert to historical norms.

Wall Street and Technical Outlook

Wall Street hasn’t reacted to the quarterly metrics but downgrades are possible in coming sessions. Consensus now stands at a ‘Buy’ rating based upon 41 ‘Buy’, 7 ‘Overweight’, and just 2 ‘Sell’ recommendations. Price targets currently range from a low of $3,775 to a Street-high $5,000 while the stock closed Friday’s session more than $400 below the low target. This huge disconnect reveals misguided analyst cheerleading, given the mixed third quarter outlook.

Amazon broke out above the 2018 high near 2,050 in April 2020, entering an historic uptrend that topped out at 3,552 in September. A rapid pullback to 2,871 marked the low end of a trading range that stayed intact until a July 2021 breakout posted an all-time high at 3,773.08. It’s been all downhill since that time, with Friday’s selloff completing a failed breakout that exposes another sub-3,000 decline. More importantly, the stock’s return in the last 12 months is now approaching zero, forcing many shareholders to consider a timely exit.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.