Amazon Q3 Preview: Online Stores, AWS and Advertising is Key

Amazon is set to release its Q3 earnings report, here are the key points to watch:

E-commerce Business:

The strong U.S. economy in Q3, with monthly retail sales and consumer confidence consistently exceeding expectations, has been beneficial for Amazon's e-commerce operations. 

Recently, Amazon launched a new ultra-low-price store, capping product prices at $20 to compete with rivals like Temu. Amazon's unparalleled logistics capabilities ensure its leadership in global e-commerce. Additionally, the small package exemption rules relied upon by platforms like Temu and Shein are facing challenges; losing this protection would benefit Amazon.

However, it's worth noting that in September 2024, Amazon raised wages for about 800,000 U.S. employees by $1.50 per hour, increasing the average hourly wage to $22. The rise in labor costs may impact the company's profit margins.

AWS Cloud:

AWS remains a key focus area. With Microsoft and Google continuously growing their cloud services, AWS must maintain its leading position. 

Unlike other cloud providers that rely on Nvidia, Amazon is developing its own custom machine learning chips, such as Trainium for training and Inferentia for inference. This could significantly reduce Amazon's chip procurement costs and potentially position it as a competitor to Nvidia.

Advertising: 

This area represents a new growth opportunity for the company. Amazon's strength lies in its ability to integrate consumer purchase data, helping advertisers accurately target their audiences and improve ad return on investment.

Prime Video is experiencing strong ad growth. Management has previously stated that the company is at the beginning of video advertising potential and believes Amazon has vast opportunities ahead. With an expanding Prime Video content library and entry into live sports broadcasting, Amazon is poised to capture a larger market share in the streaming space.