Amazon earnings preview: Cloud growth under watch

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Amazon (AMZN) will report its third quarter earnings on Thursday after the bell, with the company’s cloud business in the crosshairs.

It’s been a week of mixed cloud results. On Tuesday, Microsoft (MSFT) reported better-than-anticipated growth in its Azure cloud business, while Alphabet’s (GOOG, GOOGL) cloud growth numbers disappointed. Amazon Web Services is up next, under pressure to show some numbers.

“AWS growth is far and away getting the most airtime with investors,” JPMorgan’s Doug Anmuth wrote on Oct 19. “We continue to expect AWS acceleration in [the second half of 2023].”

Anmuth added that he’s expecting to see monetization of Amazon’s generative AI efforts — such as Bedrock, which helps other companies build large language models— to ramp up “more meaningfully in 2024,” and for retail growth to speed up in the second half of this year.

“We think investor sentiment for Amazon is mixed heading into 3Q results as investors continue to debate: one, the trajectory of AWS growth and the company’s overall AI strategy; two, regulatory challenges and the outcome of the FTC lawsuit filed last month; three, potential retail margin pressure due to rising oil prices; and four, ongoing competition from Chinese entrants [like] Temu, Shein, and TikTok Shop,” wrote Scott Devitt, ecommerce equity research analyst at Wedbush.

The earnings rundown

Here are the key numbers that Wall Street is expecting to see out of Amazon, as compiled by Bloomberg:

Net sales: $141.56 billion expected

AWS net sales: $23.13 billion expected

Earnings per share: $0.58 expected

Operating margin: 5.46% expected

Q4 net sales: $166.57 billion expected

Currently, analyst recommendations for Amazon come out to 63 Buys, two Holds, and zero Sells.

Bipedal robots in testing phase move containers during a mobile-manipulation demonstration at Amazon's

Bipedal robots in testing phase move containers during a demonstration at Amazon’s “Delivering the Future” event. (Jason Redmond/AFP/Getty Images)

Amazon shareholders could be looking at an upward swing soon. The company’s operating margins have been increasing — going up 32% between Q1 and Q2 — suggesting that Amazon’s post-pandemic efficiency efforts have been effective.

“We analyzed ten years of historical data and identified all periods when Amazon’s operating margin either increased or decreased on a basis for two or more consecutive quarters,” wrote Devitt. “We then compared share price returns during those periods, and found that on average, Amazon shares have appreciated 84% when operating margins are rising versus just 1% when operating margins are declining.”

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on X, formerly Twitter, at @agarfinks and on LinkedIn.

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