Education Series: Single-Stock ETPs

Amazon: Reduced Sales, Chaotic Earnings

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Amazon is an odd and messy “mega-cap” stock. Its highly-valued e-commerce business initially fueled the growth of a cloud computing infrastructure business that later went on to subsidize the entire company which went to start a multimedia content business ostensibly designed to drive e-commerce adoption. Late last year, after a wave of prominent activist investor called for such conglomerates with disparate to simplify value propositions and enhance asset valuations, two American giants – Johnson & Johnson and General Electric – announced plans to break up.

On account of the company’s AWS being highly-vaunted, Amazon largely resisted calls to break up in a year when 51 other companies committed to. However, this year, debate on this continues on a more low-key basis in institutional investor and hedge fund circles. On the more public side were demands from a prominent U.S.-based small business coalition at the dawn of Q2 – and potential special interest group with legislative influence. Shortly after this came a hotly-contested piece of legislation making its way through the U.S. legislature that aims to limit the influence wielded by the likes of Amazon on national commerce. Meanwhile, the company’s India e-commerce business remains mired in controversy that could potentially drain the goodwill it received when entering the market – just as its China business did before shutting down. Earlier this year, the company announced that it’s even shutting its Kindle Store in China.

Whether the legislation passes or not is presently a matter of conjecture; what is relevant that the “chimera”, while well-funded, hasn’t been very nimble lately.

Segment Incomes and Trends

Given that it is a company with high scalability costs – be it in e-commerce or cloud infrastructure, lets consider segment operating incomes from the company’s financial statements for a “heat map” schema used in recent articles to highlight each segment’s operating income share each quarter:

One modification was done to the “heat map” schema here: the company’s share buyback program – which kicked it into effect this year, as per the financial statements – has been included to highlight the effects on the company’s earned income. If the share buyback program were to be considered relative to total operating income earned, the company has been burning through them the past two quarters. In fact, as the “heat map” shows it has burnt more in share buybacks than it has earned as income in Q2. 

The negative rates in the Year Till Date (YTD) are quite interesting in that they show how much AWS has been carrying the load in recent times. As the “heat map” indicates, the company’s e-commerce + content segment (which is the only way one can analyze the befuddling mix of Prime Studios and e-commerce) had largely held their own on a “North America + International” basis quite decently until Q2 of last year. The segments began their sag from the Q3 results of last year onwards. 

Next, the “heat map” schema is applied on quarter-on-quarter (QoQ) growth in operating income to determine segment trends:

Once again, the “heat map” breaks down after Q2 2021, requiring manual intervention. The cells marked in yellow with the red text are excluded from the “heat map” formulation. The trend analysis here yields some interesting facets nonetheless:

  1. In terms of growth, the AWS segment has the only one that has shown positive growth all the way until Q2 of this year.
  2. The “e-commerce + content” segments have been a mixed bag, to put it mildly. Incomes for the “International” segment was negative in Q1 2020 (as well as Q4 2019) but there was a long period of positive incomes for both North America and International segments since then till Q3 2021, where the International segment fell into the negative once again. Since Q4 2021, both segments have been negative, with the International segment leading in losses in two of three quarters (the “North America” segment led in Q1 2022).

The negative trends since Q4 2021 is the reason why manual intervention was required: for the International segment, Q4 2021 was a larger loss than the previous quarter but the “heat map” would paint it in a positive colour. Similarly, Q1 2022 was a larger loss for the “North America” segment than the previous quarter and the “heat map” would have shown this as a positive. 

While Q2 of this year has the “North America” segment showing a lower loss and the “International” segment a higher loss than in the previous quarter, the fact remains that losses have continued.

Macroeconomic Factors and Price Ratio Trends

When it comes to business of e-commerce, there are at least some intuitive commonalities with the likes of Meta Platforms (which was covered last week) and Alphabet: if the general public lowers consumption, this has an impact on the bottom lines of a company operating in this space, no matter how well-managed it is. 

For instance, in the U.S. Census Bureau’s Monthly Retail Trade Report, the “Monthly” indicator shows a slight stabilization of sorts – with even a slight uptick – in the first two months of Q3.

In the Advance Report (ex-Auto & Gas) – which has tended to show the same trends as in the Monthly Report, September is seen to be indicating lower sales.

The overall macroeconomic outlook has been covered in a number of articles over the past few months. It’s not a pretty picture: individual debt remains high and wage earnings growth isn’t really keeping up with inflation. Consumer Price Index levels show a returning trend in increasing month-on-month deltas in inflation since July:

With an ongoing squeeze in incomes and spends, the proposition of weak retail sales till September (both actual and advance) can be merged with the CPI trajectory to infer that while dollar sales might be stable and even upward-trending, sale volumes are decreasing. 

An examination of the trends in the Price to Earnings (PE) Ratio relative to the broad-market S&P 500 with correlation as a “goodness of fit” measure would be in order, similar to that done for Apple as well as Meta and Alphabet.

As it turns out, unlike with the three aforementioned FAANG stocks, trends are utterly dissimilar. The stock has traditionally been rather highly valued and shows little correlation with trends in the other constituents of the S&P 500. In the Year to Date (YTD), the stock’s valuation shows an outsized sensitivity to the crests and troughs of the broad index. One lesson that should be eminent in the year so far is: with overvaluation comes volatility. 

This overvaluation is evident even in consensus estimates for the stock in the YTD so far: the company has missed them by a massive margin.

A sort of unwritten rule of thumb among institutional analysts is that earnings growth are generally estimated somewhat conservatively. As a result, positive earnings surprises tend to be more common than not. As a result of the surprise, there is even a momentary bump in the stock’s price. In the company’s case, the analysts’ valuation models get cloudy because of its disparate businesses and individual investors often miss the point that messy value propositions isn’t the same as robustness. 

Individual investors have been exiting the market in droves throughout the year, with the last week of September alone accounting for nearly as much in exits as the rest of that month.

The forward earnings of the broad market (i.e. the S&P 500) is under significant bearish pressure and has already erased valuation gains nearly all the way back to start of 2019.

What does help the company’s stock, however, is a facet gleaned from a number of reports produced by investment houses in the last couple of weeks that indicated that high-net worth investors and institutional investors have switched to purchasing broader ETFs over stocks. While inflows have increasingly been towards defensives and energy, consumer discretionary have also witnessed an uptick in buy-ins.

Given that the company’s stock is included as a constituent of many broad market ETFs as well as consumer discretionary ETFs, it is quite likely that the stock price will witness some rises as further units of ETFs are created and traded. Historically, investment managers managing passive investment vehicles have had a significant presence in the stock’s ownership patterns. 

Macroeconomic Factors and Price Ratio Trends

It is quite likely that the company will miss consensus earnings estimates for Q3. At the same time, there’s every possibility that most analysts might have adjusted their models as a result of which the company’s upcoming earnings will be a positive surprise.

Given lowered liquidity, there’s no telling if the stock price bump will be pronounced or even sustained. At the same time, given the increasing switch to ETFs over “single names” and the fact that ETF issuers have to physically purchase the underlying to create new issuances, even a bearish trend could show up in the charts as being bucked. 

At this juncture, on the question of whether to “buy” or “sell” this fine mess, your guess is as good as ours.

Exchange-Traded Products (ETPs) offer substantial potential to gain magnified exposure with potential losses limited to only the invested amount and no further. Learn more about Exchange Traded Products providing exposure on either the upside or the downside to the S&P 500, and the upside or the downside to Amazon’s stock.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao


Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak


Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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