'Fast Money' traders talk Amazon's stock dip despite earnings beat

Amazon Earnings Call Analysis

Key Concepts:

• Operating Income Guidance
• Operating Margins
• AWS (Amazon Web Services)
• Cyclicality
• Secular Trend
• Valuation
• Death Cross (50-day moving average crossing below the 200-day moving average)
• 50-day Moving Average
• 200-day Moving Average

1. Initial Market Reaction and Guidance Concerns

• Amazon shares initially dropped by 3.6% following the earnings call.
• Revenue guidance was above consensus, but the operating income guidance for the second quarter (13 billion to 17.5 billion) was slightly below the street's expectation of 17.6 billion, causing concern.

2. Positive Aspects of the Current Quarter

• Operating margins for the current quarter were strong at 11.8%, exceeding the street's expectation of 11.3% and up from 10.7% a year ago.
• AWS operating income margin beat the street by 350 basis points.
• The e-commerce business is considered a secular trend that Amazon is positioned to dominate.

3. Cyclicality and Macroeconomic Factors

• Amazon's business has some cyclicality, which is important to consider given the current macroeconomic environment and tariffs.
• The market's reaction may not be specific to Amazon but reflects broader market concerns.

4. Technical Analysis: Death Cross and Market Recovery

• The 50-day moving average crossed below the 200-day moving average (Death Cross) for Amazon and the S&P 500.
• Many stocks, including Amazon, have since traded back up to the 50-day moving average.
• The question is whether the Death Cross formation will prevent further gains, or if the recent recovery is sustainable.

5. Gene Munster's Perspective on Guidance

• Gene Munster of Deepwater Asset Management believes the guidance is better than the street's interpretation.
• He argues that Amazon typically comes in at the high end of its guidance range.
• The high end of the operating income guidance was in line with the street's expectations.
• Munster is curious about what factors Amazon considered when providing the guidance, such as conservatism or the current macroeconomic environment.

6. Conclusion

The market's initial negative reaction to Amazon's earnings call was primarily driven by concerns about the operating income guidance. However, strong operating margins, AWS performance, and the potential for Amazon to outperform its guidance suggest that the market's reaction may be an overreaction. The broader macroeconomic environment and technical indicators like the Death Cross are also influencing market sentiment. Gene Munster suggests that the guidance is not as disappointing as it seems, given Amazon's history of exceeding its own projections.