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Earnings Previews for Amazon

Amazon

 

Amazon will report its third-quarter earnings after the US markets close on 26 October, which will be the morning of 27 in the Asia-Pacific time zone. Amazon’s shares sharply retreated from the year-high amid a broad selloff in the US tech stocks. Its plan of increasing hiring and wages added to the downside pressure. Its shares stabilized recently on the tech comeback in October. While Amazon’s AWS remains focused on its bottom line growth, its online sales are expected to benefit from the Prime Day promotion, and the ad revenue saw strong momentum in the past year.

Q2 Earnings Review

Amazon blew away earnings expectations in the second quarter as all the key segments, including online sales, ad revenue, and AWS, topped Wall Street’s estimates amid the company’s cost-cutting measures. Amazon returned a double-digit revenue growth, up 11% year on year, since the fourth quarter of 2020. Its earnings per share came to $0.65, the highest since the fourth quarter of 2021. Its advertising revenue jumped 22% from a year ago, but the most profitable segment, AWS’ revenue, was up 12% year on year at the slowest pace since 2015. CEO Andy Jassy said, “Our AWS growth stabilized as customers started shifting from cost optimization to new workload deployment,” The overall strong performance was primarily due to a massive job cut of 27,000, or a 4% year-over-year drop in headcounts. The company also froze hiring to trim expenses. The company’s guidance for the third quarter is between $138 billion and $143 billion, or a growth of between 9% and 13%.

Business Growing Focus – the third-party sales service, AWS revenue

Online sales, advertising revenue, and AWS are the three key segments that contribute to Amazon’s overall revenue. Firstly, online sales are expected to be boosted by the Prime Day promotion, with shoppers spending hit $12.7 billion, up 6.1% from a year ago. Amazon described it as the “biggest ever” Prime Day, given sales of 375 million items over the two-day event, which could boost third-party sales further in the third quarter. Secondly, Amazon’s advertising services revenue saw a rebound in the second quarter, jumping 22% year on year to $10.68 billion, representing 7.3% of the global digital market, following Alphabet at 28.8% and Meta at 20.5%. However, the pace of Amazon’s ad revenue growth outpaced all the other major competitors over the past year as the company did not get impacted so badly by Apple’s privacy policy changes as Meta and Snap. Third, AWS can be seen as Amazon’s bottom line as investors are eager for Amazon’s AI advance. The segment saw a slowdown in growth since 2022 as e-commerce spending weakened amid macro headwinds but is expected to rebound in the second half of the year. Amazon introduced its generative AI application, called Bedrock, in response to Microsoft’s ChatGPT and Google’s Bard. An improvement in AWS’ growth will be seen as a major element for Amazon’s shareholders.

Q3 Forecast by Bloomberg

Revenue: $141.53 billion, + 11% year on year

Earnings Per Share, adjusted: $0.85 +16% year on year

Online Stores Revenue: $56.84 billion, +6% year on year

Advertising Services: $11.59 billion, +21% year on year

Amazon Web Services (AWS): $23.13 billion, +13% year on year

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