Analysts are closely watching Amazon as the company prepares to report its third quarter earnings. Revenue growth for Amazon Web Services and margins in its retail segment will be key areas of interest. Wall Street expects revenue of $157.3 billion, at the high end of the company’s guidance, and earnings per share of $1.14, up from $0.94 in the same quarter last year. Investors are particularly focused on the impact of AI adoption on cloud computing giants, following strong results from competitors Google and Microsoft this week.
Analyst Justin Post from Bank of America is predicting a 20% year-over-year growth in AWS revenue, compared to 12% growth in the previous year. He believes that both non-AI and AI workloads have improved in the quarter, leading to acceleration in growth. Post also expressed confidence in AWS’s ability to capture additional demand due to its wide customer base and ongoing innovations in chip technology. Amazon reported lower-than-expected sales in the second quarter, despite nearly doubling its profits. CEO Andy Jassy attributed this to the company’s efforts to reduce its “cost to serve,” enabling more sales at lower prices.
Morgan Stanley analysts have noted Amazon’s focus on lower-priced, lower-margin essentials as a potential driver of merchandise margin pressure. They anticipate increased discounting during the upcoming competitive holiday season to create further uncertainty. The recent wage increase for hourly warehouse workers and additional investments in the Delivery Service Partner program are also factors to consider. Amazon’s new strategy of increasing the ratio of individual contributors to managers in its corporate workforce, outlined in a memo from Jassy in September, could lead to significant savings of $2 to $4 billion by 2025.
Project Kuiper, Amazon’s satellite internet business, has also caught the attention of analysts as the company ramps up investment in this area. Wedbush analysts anticipate that Amazon will start generating revenue from Kuiper in late 2025 or early 2026, offsetting costs as the project continues to scale. They are optimistic about the company’s advertising business and expect a higher growth rate compared to the second quarter. While Amazon’s stock fell after the second quarter earnings report, it has rebounded in the past three months and shares are up nearly 30% for the year.
In conclusion, analysts are closely monitoring Amazon’s upcoming third quarter earnings report, with a particular focus on revenue growth for AWS and margins in its retail segment. The impact of AI adoption on cloud computing giants, as well as Amazon’s cost reduction efforts and new strategic initiatives, will also play a crucial role in shaping investor sentiment. The company’s Project Kuiper satellite internet business and advertising business are seen as potential areas for growth and revenue generation in the coming years. Despite some uncertainties surrounding discounting and increased competition, Amazon’s stock has shown resilience and remains up nearly 30% for the year.
