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Amazon earnings preview: Wall Street predictions, what to expect

EditorOliver Gray
Published 26/10/2023, 11:13 am
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Investing.com - Amazon.com Inc (NASDAQ:AMZN) is poised to unveil its third-quarter earnings after the closing bell on Thursday, October 26. The tech behemoth is navigating a challenging macroeconomic environment, grappling with reduced consumer and enterprise spending, inflation, and climbing interest rates. Despite these near-term challenges, the company's leadership in various business segments, expanding profit margins, and growing addressable market keep me optimistic about Amazon's stock.

Wall Street anticipates Amazon to report revenues of $141.59 billion and adjusted earnings per share of $0.58. Comparatively, last year's Q3 reported a revenue of $127.1 billion and adjusted earnings of $0.28 per share. Hence, an 11% sales growth and more than double the earnings are expected for this quarter.

Amazon's largest business segment, Online Stores, is projected to grow by 6% to $56.84 billion, equating to approximately 40% of total sales. As the world's largest e-commerce company, online sales continue to drive Amazon's top-line growth.

At present, online expenditure accounts for 15.4% of total retail sales in the US, and this percentage is even lower in other developing economies. This provides Amazon with ample opportunities for expansion in the coming decade.

Amazon's extensive global reach and vast network of fulfillment centers and warehouses give it a competitive edge, enabling low delivery costs and timely product shipments. Will Amazon Web Services Sustain Its Remarkable Growth?

Amazon leads the world in public cloud services. In Q2, AWS sales increased by 12% to $22.1 billion, a substantially lower rate than in recent years due to cautious enterprise spending.

With a 32% market share, AWS stands to benefit significantly from the public cloud market, which is expected to reach $1.6 trillion by 2030, as per IndustryARC. If AWS maintains its market share, its cloud sales could exceed $510 billion by the end of the decade.

AWS is Amazon's primary profit driver, with an operating margin of 24.7% in the past 12 months.

Amazon's Advertising segment is set to be the company’s fastest-growing business. It's the third-largest digital ad platform globally, trailing Alphabet (NASDAQ:GOOGL)'s (NASDAQ:GOOG) Google and Meta's (NASDAQ:META) Facebook.

While Alphabet and Meta have struggled with sluggish ad sales in the last 18 months, Amazon is rapidly gaining market share as its platform offers advertisers a customer base with higher purchase intent.

Amazon significantly increased capital spending during the COVID-19 pandemic to meet the surge in demand. However, as economies reopened and online spending decreased, Amazon’s free cash flows took a substantial hit.

As a result, Amazon focused on cost reduction to boost profit margins. It cut capital expenditures by 10% year-over-year in the last four quarters and also reduced its workforce through corporate layoffs and restructuring.

Bank of America (NYSE:BAC) suggests that robust consumer spending could lead to strong third-quarter sales for Amazon. The bank's data indicates a 1% year-on-year increase in online shopping during the third quarter, a trend likely to persist till year-end. Bank of America maintains its "Buy" rating with a $174 price target, indicating a potential upside of 35%.

Goldman Sachs (NYSE:GS) expects Amazon Web Services' revenue to have remained stable over the past quarter. However, the firm notes possible headwinds such as rising competition from eCommerce platforms like Temu and soaring energy prices, which could impact profit margins. Goldman Sachs maintains its "Buy" rating but has reduced its price target to $175 a share, indicating a potential upside of 36%.

JMP strategists expect a surge in online sales during Amazon's Prime Big Deal Days. They view this as an extension of holiday spending rather than an additional benefit to revenue. JMP rates Amazon as "Buy" with a $175 price target, indicating a potential upside of 36%.

Jefferies predicts an uptick in AWS profits due to diminishing cloud optimizations and increasing AI demand. Jefferies rates Amazon as "Buy" with a $175 price target, indicating a potential upside of 36%.

JPMorgan (NYSE:JPM) anticipates healthy profits for Amazon in the second half of the year, supported by strong American consumer spending and expected growth acceleration in AWS. JPMorgan rates Amazon as "Buy" with a $180 price target, indicating a potential upside of 40%.

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