If there is an indication of UPS’s impressive earnings report for the fourth quarter, the key customer may surprise Amazon Wall Street with its earnings after the closing clock.
The logistics giant – which trusts about 11% of its annual sales on Amazon (AMZN) – has blown away analysts’ sales and profit estimates. Every UPS business segment has seen better-than-expected sales as people around the world order holiday gifts amid the COVID-19 pandemic.
The revenue of UPS (UPS) local and international businesses increased year-on-year by 17.4% and 26.8% respectively. Both segments recorded an improvement in profit margins over a year ago.
‘There was a strong change in demand patterns with e-commerce sales reaching about 21% of total retail sales. We do not think it will change if we look ahead. We therefore expect to see continued penetration into our business to consumers, ”UPS CEO Carol Tomé told Yahoo Finance Live on Tuesday.
UPS shares rose 4% early in trading on Tuesday.
The FAANG share that performs the worst
Oddly enough, it appears that Amazon’s share price does not reflect the strong potential for a big fourth quarter and optimistic prospects.
Amazon shares have gained a meager 5.6% over the past six months, reversing the S&P 500 profit by 17.5% and Nasdaq Composite’s 27%. According to Yahoo Finance Premium, the stock has been the weakest member of the FAANG (Facebook, Amazon, Apple, Netflix, Google) group for the past six months.
Amazon was likely to be the primary beneficiary of an acceleration in e-commerce growth during the fourth quarter, as investments in logistics improved its competitive advantage over players that were more dependent on 3P businesses. While a strong holiday season is a positive indicator for 4K20 and 2021, tough components remain the most important debate for the stock, ‘said Brent Thill, analyst at Jefferies, in a note explaining the stock’s recent weakness.
But if Amazon delivers big on its earnings day, it could easily revive the case on the stock. The case is rooted in the growing dominance of retail amid pressure on online shopping and strength in Amazon Web Services (AWS).
We believe that Amazon’s retail business remains healthy worldwide, with a robust Prime Day in October helping to support strong revenue growth and margin improvement in the retail business (North America and International Retail Margins were both positive in the third quarter); meanwhile, we continue to believe that the AWS firm has the relatively early turn of its growth potential and is likely to benefit from it in the coming quarters, as companies want to accelerate their shift to the cloud, “Guggenheim Securities analyst Robert Drbul wrote before Amazon’s earnings released.
Brian Sozzi is a general editor and anchor by Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and so on LinkedIn.
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Originally published