Amazon.com entered 2024 as a top pick on Wall Street, with analysts confident AI demand would boost the tech giant's cloud business as the retail business continued improving its profitability. But with third quarter earnings due Thursday, the year so far has been uneven for Amazon stock.
Shares rocketed 30% during the first six months of the year, reaching record highs and a milestone $2 trillion market capitalization by late June. But a pullback that started in July turned into a full-on slump by early August after Amazon's second quarter results showed lower-than-expected revenue growth and a quarter-to-quarter decline in retail margins.
Amazon stock has since bounced back but still sits below highs from this summer. That's despite Amazon Web Services revenue growth accelerating and retail margins improving year over year, as analysts were hoping.
So the third quarter earnings statement Thursday will offer a big test of Amazon's performance and perception. Here's what to know ahead of the report:
'Turning Over Rocks of Worry'
To some analysts, investors are overlooking the positives for Amazon stock this year.
"Objectively, Amazon has never been stronger — they are the market leader in cloud and e-commerce, with both business units growing steadily and profitably, and (they are) third in digital advertising, making a strong push to close the gap to the two players ahead," Bernstein analyst Mark Shmulik wrote to clients Friday.
Shmulik reiterated a buy rating and noted that Amazon stock is still outperforming the S&P 500 this year. However, he wrote, "we think the stock is being held back by investors turning over the next rock of worry."
Among those concerns are whether Amazon's Project Kuiper satellite internet investments will cut into retail margin improvements. Slower-than-expected advertising growth in the second quarter has also weighed on investor sentiment.
"With somewhat reset expectations we believe there's room this quarter for Amazon to surprise to the upside on top and bottom line, led by rebounding strength in the ad business and unknown cost savings to offset the laundry list of headwinds we've all compiled intra-quarter," Shmulik wrote.
Amazon Stock Q3 Report: Numbers To Watch
Analysts polled by FactSet project Amazon will post a 21% increase in earnings for the September-ended quarter, to $1.14 per share. Sales are seen rising 10% to $157.3 billion.
Investors expect revenue growth for the closely watched Amazon Web Services division to further accelerate. Analysts project a 19.1% increase in AWS sales, to $27.5 billion. Sales grew 18% in the second quarter.
Sales for Amazon's advertising division, meanwhile, are projected to grow 18.3% to $14.3 billion. That's down slightly from 19% growth in the second quarter.
Investors are also anxiously awaiting Amazon's sales and operating income guidance for the fourth quarter. Wall Street analysts project Amazon will post sales of $186.3 billion and operating income of $17.3 billion for the December quarter.
BofA Securities analyst Justin Post wrote Thursday that there is a risk that "Street estimates are too high relative to 4Q guidance history." Amazon has a reputation for giving conservative guidance.
Post reiterated a buy rating for Amazon in the client note.
"Near-term, street guidance concerns could help (Amazon) stock if outlook doesn't surprise and, medium-term, exposure to accelerating AI-driven cloud demand is the top reason to own Amazon," Post wrote.
Amazon Stock Recent Downgrade
Wells Fargo recently downgraded its view on Amazon stock to neutral, citing concerns that spending on Amazon's satellite internet business and competition from Walmart would weigh on shares. But analysts overall remain bullish on Amazon, despite some short-term concerns. Of the 67 stock analysts following Amazon, 94% have a buy rating, according to FactSet.
Meanwhile, Amazon stock is about 8% below a 201.20 consolidation pattern buy point, according to MarketSurge. The 201.20 buy point represents a record high Amazon reached in early July before pulling back that month.
With a roughly 1% gain Friday, Amazon stock retook its 21-day moving average, an important short-term support level.
