Amazon reports second-quarter earnings on Thursday, with investors keying on sales growth for the Amazon Web Services cloud-computing division and the profitability of the company's massive e-commerce operations. Amazon stock was up Wednesday.
Still, shares have been slumping in recent weeks. Amazon stock climbed to a fresh record high and cleared a $2 trillion market cap late last month before surrendering those gains in July. Shares are up 25% year-to-date but have lost about 6% in the month of July.
Analysts polled by FactSet expect Amazon to post earnings of $1.03 per share, up 57% from the same quarter a year earlier. Sales, meanwhile, are projected to rise 10.6% year over year to $148.67 billion on the quarter. Amazon stock watchers are highlighting two variables that could drive how the market reacts to Amazon's earnings.
"We think AWS revenue growth re-acceleration and retail profitability (including whether International stays profitable) will be the most important variables for the stock this quarter (along with typical quarterly guidance)," New Street Research analyst Dan Salmon wrote to clients earlier this week.
On the stock market today, Amazon stock is up 3% near 187.
What Do Microsoft, Google Results Mean For AWS?
With AI expected to boost demand for cloud services, investors have been ultrafocused on AWS results. After a slowdown late in 2022 and last year, investors are looking for Amazon to reaccelerate the sales growth for AWS, a key profit driver for Amazon.
According to FactSet, analysts expect sales for the division to grow 17.6% year over year to $26 billion. Sales grew at a 17.2% clip in the first quarter.
Amazon is the last of the so-called Big Three in cloud computing to report June-quarter results. On Tuesday night, Microsoft reported Azure cloud revenue growth of 30% for the quarter. That was slightly lower than the 31% expected by analysts.
Microsoft stock fell sharply on the initial report late Tuesday. But company leaders eased some concerns by noting that AI-related cloud demand remained strong.
"In our view many investors will likely view the 2-point deceleration in non-AI or core Azure revenue growth as being a modest net negative to AWS and the smaller cloud proxy stocks such as Snowflake, Datadog and MongoDB," UBS analyst Karl Keirstead wrote to clients early Wednesday.
Google, meanwhile, grew cloud revenue faster than expected for its June quarter. The company published results last week.
Prior to Microsoft's and Google's earnings report, CFRA analyst Arun Sundaram wrote that he expects Amazon to beat top- and bottom-line expectations. He further expects Amazon to top expectations for AWS growth, with sales also accelerating in the second half of 2024.
"Investors tend to overly focus on the Amazon Web Services (year over year) revenue growth rate relative to Microsoft Azure's growth rate," Sundaram wrote in a client note earlier this month. "We wouldn't put too much focus on just growth rates as AWS has a much larger base compared to Azure from an absolute dollar perspective."
Analysts will also be attuned to the costs of Amazon's AI push. Ballooning capital expenditures from tech giants are raising questions from investors about the payoff from AI.
Amazon Stock: Retail Profitability In Focus
Investors are also hoping for further profitability improvements from Amazon's retail operations. Chief Executive Andy Jassy – who stepped into the role three years ago – has focused on cutting costs and improving the efficiency of Amazon's sprawling e-commerce operations.
That paid off with strong operating-income growth for Amazon. Amazon posted $15.3 billion in operating income for the first quarter, up 220% from a year earlier. AWS still powers the majority of that income. But the firm's North American operations contributed $5 billion in operating income, up 450% from a year earlier.
For Q2, analysts polled by FactSet expect operating income to grow 79% year over year to $13.7 billion. That includes $8.5 billion operating profit from AWS, and a $5.4 billion operating profit from North American retail. Analysts also expect a slight $56 million profit from international operations.
Wedbush analyst Scott Devitt earlier this week maintained a bullish outperform rating on Amazon stock. He told clients he views the company as best positioned within the internet stocks he covers.
"Amazon's efforts to control headcount growth and unlock fulfillment cost efficiencies are contributing to core retail margin expansion this year," Devitt wrote. "The company's shift to regionalized fulfillment in the US is having a positive impact on frequency and service levels while decreasing cost to serve."
