Amazon will report its first-quarter earnings after the US markets close in the morning on 28 April (APAC time). The e-commerce giant is up 28% year-to-date amid the broad comeback in tech shares. Its shares also jumped following positive earnings from Microsoft and Alphabet as AI-powered cloud business gathered strength, suggesting the core business of Amazon, AWS, may follow suit. While the company reported a full-year loss of $ 2.7 billion due to a $12.7 billion write-down in Rivian investment in 2022, its AWS revenue grew at a steady pace of 29% year over year. In the upcoming earnings reports, whether the tech giant can beat the market expectations will be key to steering its near-term price action.
Why does Amazon have a good chance to beat market expectations?
Firstly, like other big tech companies, Amazon has been aggressively cutting costs through lay-offs, hiring freeze, and pausing experimental projects since the end of last year. Amazon had an 18,000 job cut in January, followed by an additional 9,000 lay-off plan that was announced in March, bringing the total headcount reduction to 27,000, approximately 8% of its workforce, which represents the biggest job cuts in history. The company endeavoured to cut expenses due to economic challenges, which caused its shares to tumble more than 50% in 2022. The massive job cuts may be seen as a negative aspect that impacts its income but lower expenses may lead to a higher profit margin.
Secondly, the devaluation in Rivian investment will not have an impact on its earnings anymore. The write-down of $12.7 billion in Rivian investment was a major factor that led to Amazon’s full-year loss of $2.7 billion in 2022. Without the negative impact of Rivian, its net income is expected to improve in the first quarter.
The third, positive signs of cloud business development from Azure and Alphabet may suggest AWS will also provide cheerful results. Amazon’s AWS is the leader in cloud-computing business, followed by Microsoft’s Azure and Alphabet’s Google Cloud. In the recent earnings reports, both companies beat growth expectations in this segment. Google Cloud also had its first profitable quarter after three-year losses.
Now let’s have a look through its previous growth numbers. Amazon’s revenue grew 7% ($116.4 billion), 7% (121.2 billion), 15% (127.1 billion), and 9% (149.2 billion) in the four quarters of 2022, the full-year growth was at 9% to $514 billion. Despite steady revenue growth, its net income has been decreasing throughout 2022 as online sales slowed significantly internationally due to a strong US dollar, dragging on profitability. Rivian investment loss has also eaten up a big chunk of its net income. AWS was the only segment that steadily grew, which is the core income source of the company, though this segment also decelerated. The revenue growth in AWS was at 37%, 33%, 28%, and 20% in the four quarters of 2022.
Amazon expects its first-quarter revenue to be between $121 billion and $126 billion, or a 4% to 8% growth year over year. According to Zacks Consensus Estimate, the e-commerce giant is expected to report earnings per share at $0.25, or a 19% annual increase. The revenue is forecasted at $125 billion, or a 7.2% growth annually.
AmazonSource: CMC Markets NG as of 27 April (Click to enlarge the chart)
Amazon’s shares have been moving in an ascending channel since 13 March, the near-term directional bias is to the upside, with the potential long target near 114, the highest on 2 February. The pivotal support may be at the 50-day moving average of around 97. A breakdown below this level could take its shares to its March low of 90.
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