Earnings Preview: Amazon.com, Inc. and Alphabet Inc

Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL) are gearing up to report earnings tomorrow

Kirra Fedyszyn
Oct 26, 2016 at 10:41 AM
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Big names in tech are highlighting this week's bustling earnings calendar, with the latest results from Apple Inc. (NASDAQ:AAPL) drawing traders' attention today. But two high-profile companies still waiting in the wings are internet giants Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL), which will both report third-quarter figures tomorrow night. Below, we'll take the pre-earnings temperatures of AMZN and GOOGL.

It's been a strong year so far for AMZN, which has added 22% in 2016, hitting a series of higher highs in recent months, and riding atop support from the 50-day moving average since March. Specifically, the stock tapped an all-time peak of $847.21 in early October, and is currently trading at $825.26, off 1.2% for the day. Analysts are firmly in AMZN's bullish corner heading into tomorrow's earnings report, with a consensus 12-month price target of $917.52, deep in never-before-seen territory. In fact, Citigroup raised its price target on the stock to $975 from $870 this morning.

There are signs of doubt elsewhere, however. Short interest on AMZN climbed by 29% during the most recent two-week reporting period -- though these bearish bets are still quite low, representing 1.5% of the stock's total float. Meanwhile, options traders have been targeting AMZN puts over calls at an unusually rapid rate. The stock's 50-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits in the 88th percentile of its annual range, at 0.97. Still, it's possible these seemingly pessimistic bets are actually the result of shareholders hedging their long stock positions ahead of earnings.

Were options traders truly betting on a downside move for Amazon.com, Inc. (NASDAQ:AMZN), it would be a bold bet. After all, the stock has swung higher in the session following its earnings report in six of the last eight quarters, with an average one-day move of 8.8% in either direction. Currently, options are pricing in a marginally wider move of 9.5% for the session after tomorrow's earnings report.

GOOGL has seen a more modest year-to-date gain of 5.6%, but the stock hit a fresh all-time high of $838.50 on Tuesday after several recent bounces off its 50-day moving average. Analysts certainly seem to think more gains could be ahead. Out of 29 brokerage firms tracking the stock, 27 recommend buying the shares. And the average 12-month price target sits well overhead, at $945.59. Today, the shares are off 0.8% at $821.85.

By and large, traders appear to agree with this optimistic outlook. Short interest currently represents only 0.5% of GOOGL's available float. And options traders have shown an unusual appetite for the stock's long calls of late. Specifically, GOOGL's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.72 sits higher than 77% of all readings taken in the past year.

Notably, short-term volatility expectations have been surprisingly low, considering GOOGL's upcoming earnings report. The stock's Schaeffer's Volatility Index (SVI) of 30% sits just 1 percentage point from an annual low -- suggesting recent near-term options buyers could have gotten a bargain.

Those betting on an upside move have history on their side. GOOGL has moved higher in the session subsequent to reporting earnings six times in the past eight quarters. The average single-day post-earnings move over the period is 5.3%. But options traders seem to be eyeing more volatility this time, pricing in a 7.8% one-day swing for Alphabet Inc (NASDAQ:GOOGL).

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