What happened?

Amazon reported a record $3.6-billion profit in Q1, while its earnings per share (EPS) more than doubled. The dynamics of the stock on the news was, however, rather moderate. What does it all mean?

Why is it important?

In general

Amazon is one of the heavyweights of the American stock market. It’s currently the third most valuable company in the world, behind Microsoft and Apple. The tech stock performed well in 2019 as it rose by 28%.

For investors

Amazon’s Q1 revenue rose by 17% y/y to $59.7 billion. That sounds good, although if we look at trends, we will see that the company’s revenue growth decelerated from 20% in Q4 of 2018 and 29% in Q3. The firm’s advertising business showed only 34% revenue growth after gaining at least 60% in the past 5 quarters.

Nevertheless, fundamentally investors have nothing to fear about: Amazon’s profitability increases. High-margin businesses, such as cloud computing and advertising, represent the main profit drivers. In addition, the e-commerce and cloud computing company are bearing fruit from the previous massive investments in its businesses.  

Amazon keeps pouring money in fulfillment centers, premium video content, bricks, and mortar stores, and healthcare. There is little doubt that the company’s future is safe and sound. At the same time, the current P/E ratio of 96 is insanely high. If profit growth keeps slowing down, the stock may lose the uptrend.     

For traders

Amazon stock rose to the highest levels since the beginning of October. The price managed to rise above 78.6% Fibonacci retracement of the 2018 decline at 1,877.50, so the main levels to watch on the upside are in the 2,000 area – that is, if the price gets above 1,940. Support is at 1,880 and 1,825.

The daily chart of Amazon Inc.
Amazon Inc., daily chart

Stocks can be traded as a CFD at Markets.com.