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AMZN Earnings Preview- What to watch for tonight

AInvestThursday, Aug 1, 2024 11:58 am ET
3min read

Earnings from Amazon.com Inc. and Apple Inc. will be crucial in guiding the Nasdaq 100 after a volatile period marked by extreme fluctuations. As the last megacaps to release results before Nvidia Corp. in August, these reports will set the tone for tech investors, particularly focusing on how artificial intelligence is driving growth in Amazon’s cloud-computing unit and boosting demand for Apple's next iPhone. The results will also provide valuable insights into the health of consumer spending, with Amazon shares already up about 25% this year.

Amazon.com Inc. is set to release its Q2 earnings report after the market closes, with a conference call scheduled for 5:30 p.m. ET. Analysts project the company will report revenue of $148.8 billion, marking an 11% increase year-over-year, and adjusted earnings per share (EPS) of $1.04, up from 65 cents in the same period last year. Amazon has guided for Q2 operating income between $10 billion and $14 billion, signaling strong performance despite broader economic challenges.

Key metrics expected by analysts include AWS revenue at nearly $26 billion, representing more than 17% year-over-year growth, and advertising revenue projected to reach $13 billion, a 21.7% increase from last year. The Stores segment, bolstered by events like Prime Day, is anticipated to show significant activity, while improvements in operating margins, especially in the North America segment, will be closely watched. Analysts also expect updates on AI initiatives and the overall capital expenditures for the year.

Comments from analysts emphasize the importance of AI and cloud services for Amazon's future growth. Citi analysts, led by Ronald Josey, anticipate AWS revenue growth accelerated in Q2 due to generative AI tailwinds, while also predicting a beat in operating income thanks to improved retail efficiencies and strong advertising demand. Truist analyst Youssef Squali highlights Amazon's ability to gain share in global e-commerce and sees multiple growth vectors powering the company's continued expansion.

Retail performance and consumer spending trends will be significant indicators, especially given mixed reports this earnings season. Analysts like Matt Stucky of Northwestern Mutual Wealth Management note the importance of Amazon's retail margin expansion and its impact on profitability. Additionally, the potential for a surprise dividend announcement is a point of interest, as Amazon remains the last major tech company without a dividend program.

Amazon's Q2 results will follow earnings reports from key competitors like Microsoft and Google, both of which had mixed receptions based on their cloud and AI performances. Wall Street's current focus is on tangible returns from AI investments, making Amazon's updates on its AI initiatives and AWS growth crucial for investor sentiment. The company's dominant position in the cloud market and ongoing efforts to enhance its e-commerce offerings will be under the microscope.

Amazon saw its stock rise following a strong Q1 earnings report, showcasing impressive upside in both EPS and revenue. The standout metric was a significant 221% year-over-year increase in operating income to $15.31 billion, far surpassing the prior guidance of $8-12 billion. The company’s guidance for Q2 operating income of $10-14 billion also exceeded expectations.

The Stores segment performed well, driven by successful shopping events like Amazon's Spring Deal Days in Europe and the first Big Spring Sale in Canada and the US. Faster delivery times, enhanced by regionalization efforts and cost-saving measures such as consolidating units into fewer boxes, boosted customer purchase frequency and overall spend. Additionally, Amazon is preparing for its 10th Prime Day event in July, which is expected to further drive sales.

Amazon Web Services (AWS) was the highlight of the quarter, with a 17% growth in constant currency, an improvement from previous quarters. AWS is now a $100 billion annualized revenue business, with significant growth in both generative and non-generative AI workloads. The Advertising Services segment also showed robust growth, with a 24% increase in revenue to $11.82 billion, driven primarily by sponsored ads and early gains in Prime Video ads. Despite guiding Q2 revenue below consensus due to foreign exchange impacts, the strong performance in AWS and advertising has left investors optimistic.

Overall, Amazon is expected to deliver strong results, with robust growth in its cloud and advertising segments. The company's strategic investments in AI and improvements in operational efficiency are anticipated to drive continued success. As one of the leading players in tech, Amazon's earnings report will be a key indicator of broader market trends and investor confidence in the sector.

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