Amazon (ticker: AMZN) is set to release its earnings for the September quarter after the close of trading on Thursday, and all signs point to positive results. The key factors driving the quarter's performance are expected to be continued growth in the flagship online stores business, a rebound in the growth rate for Amazon Web Services (AWS), the company's cloud computing business, and ongoing strength in advertising.
AWS Growth on the Rise
AWS growth has experienced a slowdown for the past six quarters, dropping to 12.2% in the June quarter from 39.5% in the final quarter of 2021. This deceleration is due to cloud customers focusing on optimizing their cloud spending and maximizing the value of their investments. However, Amazon bulls predict that AWS growth will soon accelerate as corporate spending budgets loosen and there is an increased focus on AI workloads.
Analysts foresee a 12.9% improvement in Amazon Web Services revenue for this quarter, reaching $23.2 billion. This would mark the first sequential increase in AWS growth rate since 2021. While Microsoft reported better-than-expected growth in its Azure cloud business earlier this week, Google's cloud business fell short of Street expectations.
Sales and Profit Estimates
For the September quarter, analysts have estimated that Amazon's overall sales will amount to $141.5 billion, representing an 11% increase compared to the previous year. Profit is projected to rise to 58 cents per share, up from 28 cents in the year-earlier quarter. The online stores business is expected to see a 6.5% increase in revenue, reaching $57 billion. Additionally, third-party seller services revenue is estimated to grow by 16.7% to $33.4 billion, with subscription services following suit at a growth rate of 13.5% to $10.1 billion. Lastly, ad revenue is predicted to increase by 21.6% to $11.6 billion, according to Street estimates tracked by FactSet.
In conclusion, Amazon is poised for a strong quarter with expected growth and improvements across its various business segments.
Amazon's Strong Performance Fuels Optimism for the September Quarter
Amazon, the e-commerce giant, is set to deliver impressive results for the September quarter, as indicated by its guidance. The company forecasts sales ranging from $138 billion to $143 billion, along with an estimated operating income between $5.5 billion and $8.5 billion. According to street consensus, the expected operating income is $7.7 billion.
Notably, the growth rate of Amazon Web Services (AWS) holds great significance for investors. Analysts, such as Justin Post from BofA Global Research, consider this area as a top priority for the market. However, there are concerns that demand for AWS has slowed down, with some third-party sources suggesting a deceleration. Post projects 12.5% growth for AWS and warns that figures around 11% could lead to selling pressure. On the other hand, if the growth rate exceeds 13%, it is likely to drive the stock price higher.
Improvements in online spending further contribute to positive sentiment surrounding Amazon's performance. Data from aggregated credit and debit card transactions indicates a 1% increase in online spending compared to a year ago. This growth marks a two-point acceleration from the previous quarter, showcasing a consistent upward trend. Additionally, checks on advertising spending also bring encouraging news for the company.
Looking ahead to the December quarter, analysts' estimates predict revenue of $167.2 billion, representing a 12% increase, accompanied by an operating income of $8.7 billion. Justin Post is more optimistic than the street consensus, projecting figures of $169.3 billion and $9.5 billion for revenue and operating income, respectively. Post emphasizes that Amazon's success in 2024 hinges on two key factors: accelerating AWS growth to high teens and improving North American retail margins to the 5% range.
Post outlines several potential drivers for increased retail performance, including enhanced logistics efficiency, advertising initiatives, fee adjustments, and a favorable comparison against previous performance. Furthermore, he believes that AWS can achieve acceleration in the fourth quarter, followed by even more growth in the first quarter of 2024 due to an easing optimization cycle and rising demand for artificial intelligence applications. Based on this optimistic outlook, Post maintains his Buy rating and sets a target price of $174 for Amazon's stock.
With impressive year-to-date growth of 44%, Amazon continues to solidify its position as a market leader.