E-commerce and cloud computing giant Amazon will report its second-quarter earnings after the US markets close on 3 August (APAC time). As one of the top performing blue chip stocks this year, AMZN stocks are up 52% year-to-date. This run is likely in part due to Amazon's recent investment in generative artificial intelligence (AI). By using generative AI to summarise product reviews and speed up deliveries, Amazon has effectively found solutions to streamline its processes and improve productivity. This may put AMZN stocks in the running when it comes to the best AI stocks as it might eventually figure out a way to further cut costs and improve operational profitability.
On top of innovation in the AI space, Amazon is also innovating when it comes to payment methods. Amazon One is its all-new cashless palm payment technology that's slowly rolling out across more than 400 Whole Foods Market store locations across America. These innovations contribute to the Amazon ecosystem and may get investors and traders to be more excited about the future growth of AMZN stock valuations.
Amazon Earnings Q1 Review
Like many of its tech counterparts, Amazon beat first-quarter earnings expectations, with earnings per share of 0.31 (45% beat) and revenue of US$127.358B (2% beat). While these were solid surprises to the upside, AMZN stock declined after reporting first-quarter performance. This was likely because Amazon Web Services' operating margins fell to 24%, which represents the narrowest margin since 2017. Since then, AMZN stock has been on the rise alongside fellow blue chip tech stocks like Alphabet (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT). With the recent innovations in Amazon One and generative AI, investors and traders may have plenty to look forward to when it comes to new announcements with this upcoming Amazon earnings report.
What Is Amazon's Business Focus?
While Amazon is mostly known for its vast e-commerce business, it has various alternative streams of revenue that are certainly worth taking note of.
From sizing up against online giants like Barnes & Nobles to becoming the e-commerce giant that it is today, Amazon has come a long way from its online book-selling days. Founder Jeff Bezos started Amazon as an online marketplace for books, but he eventually pivoted towards establishing Amazon as "The Everything Store" covering all categories from music and video games to groceries and beauty products. In 2023, Amazon is expected to bring in US6B in retail e-commerce sales worldwide.
Unfortunately, profiting from Amazon's core business may be especially tough during times of tightening macroeconomic circumstances like falling consumer purchasing power and high logistics costs. While the scale that it has achieved today is impressive, the biggest issue is that Amazon's e-commerce business segment runs on razor-thin margins like other popular retail grocery stocks. Even after achieving its largest-ever Prime Day and boasting online sales of a record US$12.7B, profitability still may remain a concern for the e-commerce giant because of the ever-present threat of inflation.
Investors should especially keep an eye out for the e-commerce segment during Amazon's earnings report for this quarter. This is because we're seeing inflation hit 3% and witnessing first-hand the impact of declining inflation numbers on consumer purchasing patterns. As a bellwether for B2C buying activity, investors could possibly look at the shipping activity for businesses like United Parcel Services (NYSE: UPS). Will AMZN stocks hit their stride this quarter or see a further decline due to a lowered outlook?
Amazon Web Services (AWS)
Contrary to popular belief, AWS is not a recent endeavour to tap into existing cloud computing trends. AWS started in 2002 and was initially focused on offering Application Programming Interfaces (APIs) for web developers to build web-based applications on Amazon's e-commerce platform. Since then, AWS has gone on to offer S3 cloud storage, web hosting and database migration for big-name clients like Netflix (NASDAQ: NFLX), Spotify (NYSE: SPOT) and Apple (NASDAQ: AAPL). As the largest contributor to Amazon's operating margins, AWS was growing up to 40% year-over-year at one point in time. Since the profit margins of AWS are so high, this caused analysts to peg AWS as Amazon's new crowning jewel and major growth driver.
Unfortunately, recent data might suggest that AWS is becoming the cloud space's growth laggard. As the market opens up and we see competitors like Alphabet and Microsoft up the ante with Google Cloud and Azure, Amazon is seeing their market shrink over time with their latest quarterly report. With CFO Brian Olsavsky lowering growth guidance for AWS revenue to just 11%, it's no wonder investors began selling off after Amazon's first quarter earning results as they probably feared that the AWS and Amazon growth story was in peril.
In this coming earnings report, bullish investors may be looking out for more mentions of artificial intelligence and how it would integrate with AWS product offerings. With the latest news about Amazon's US0M investment in a generative AI innovation centre, Wall Street might have high expectations about possible announcements and product reveals as we head into the upcoming Amazon earnings report.
AMZN Stock Technical Analysis
Source: TradingView as of 24 July 2023
After rallying on news of achieving its biggest Prime Day to date, AMZN shares have rejected off the US$135 resistance line, which doubles as a key 0.5 Fibonacci Retracement level. This may be seen as a sign of weakness for AMZN stock as investors might be selling their shares and taking profit after hearing about the recent good news. The near-term directional bias looks to be to the downside as AMZN shares may possibly retest the US$122.50 support line, which is the 0.382 Fibonacci Retracement level.
Bullish AMZN stock traders might be looking for the positive momentum from Amazon's strong earnings report and growth numbers to cause shares to surge past US$135 and head towards the US$147.50 resistance line.
On the other end of the argument, bearish AMZN share traders may be looking out for a disappointing earnings report from Amazon. This could provide enough downward momentum to cause AMZN shares to retest the US$122.50 support line.
As Amazon continues to evolve and expand its services, understanding its financial outlook becomes increasingly important for investors and traders alike. From analysing the previous quarterly performance of AMZN stock to considering possible tailwinds and headwinds, we hope our Amazon earnings forecast and preview have provided invaluable insights into the performance and growth prospects of this cloud computing and e-commerce stock.
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