This Amazon quarter is one Wall Street can never seem to get right

Is it all Go on the revenue front?
Is it all Go on the revenue front?
Image: Reuters/Lindsey Wasson
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Despite being one of the most watched stocks in the market, Wall Street has a habit of over-estimating the company’s fourth-quarter results. In fact, in every year since 2010, Wall Street has over-estimated Amazon’s revenue performance in the last quarter.

Over the past seven years, Amazon has missed Wall Street expectations for its fourth-quarter revenue by 2.1% on average; by contrast, it has beaten Wall Street expectations for all other quarters by 1.6%.

Over the past seven years, Amazon has beaten the mid-point of its own fourth-quarter revenue guidance by only 0.9% on average; by contrast, it has beaten the mid-point of its revenue guidance for all other quarters by 3.6%.

The trend isn’t that hard to spot, yet analysts keep expecting the reverse. For tomorrow’s earnings report, they predict the company will beat its fourth-quarter revenue guidance by 2.7%—making us wonder, why do they think things will be different this time?

What is the reaction to these misses? On average, Amazon’s stock has declined an average of 2.6% after each fourth-quarter earnings report but has increased an average of 2.1% after every other quarter since 2010.

We wouldn’t be surprised to see a strong quarter from Amazon tomorrow. We surveyed 2,750 Quartz readers in December and 50% said they expected to make more than 50% of their holiday purchases on Amazon. And 90% of Prime members reported that they intended to renew their membership. That could mean a great holiday quarter. But that doesn’t mean that the company will beat expectations this time with estimates 2.7% above the mid-point of company guidance.

It’s unclear why Amazon and Wall Street haven’t corrected for this discrepancy yet. Perhaps the company and the analysts are letting their enthusiasm for the holiday season get the better of them. The question is whether they’ve done it again this year.

The market could shrug off a revenue miss based on news like future plans for physical retail or entering the healthcare market. But if there isn’t an alternate storyline, history shows that the stock may trade off after another earnings miss this week.