Amazon Earnings Are Here. All Eyes Are on the Cloud

When Amazon reports earnings after the close of trading on Thursday, the key will almost certainly be the outlook for Amazon Web Services, the company’s cloud computing platform.

Amazon stock is up nearly 60% for the year to date.

For the June quarter, Street consensus estimates for Amazon (ticker: AMZN) call for sales of $131.2 billion, up 8% from the year earlier quarter, with a profit of 35 cents a share, up from a loss of 20 cents a year ago.

In reporting March quarter results, the company had projected revenue of between $127 million and $133 billion for the third quarter, up 5% to 10%. Amazon’s guidance calls for operating income of between $2 billion and $5.5 billion.

Amazon Web Services has been decelerating in recent quarters, as customers focus on optimization of their cloud spending, and that will continue this time. Street consensus as measured by FactSet calls for $21.7 billion in AWS revenue in the quarter, up 10% from a year earlier, another ratchet down from the nearly 40% growth level in the 2021 fourth quarter. Current estimates call for 10.2% AWS growth in the September quarter—and the Street’s reaction to the quarter almost certainly will turn on what it says about AWS growth moving forward.

Street estimates call for second quarter online stores revenue of $54.2 billion, up 6.5%, with third-party seller services revenue of $31 billion, up 13.1%. Subscription services are projected at $9.7 billion, up 11%, while ad revenue is forecast to be $10.3 billion, up 18%.

For the September quarter, Street estimates call for overall revenue of $137.5 billion and profit of 41 cents a share.

Evercore ISI analyst Mark Mahaney, who has an Outperform rating and $150 price target on Amazon shares, writes in a preview note the strong results from the cloud businesses at both Microsoft (MSFT) and Meta Platforms (META) have largely de-risked the quarter for AWS. 

Mahaney says Amazon remains a top pick, given what he calls his “triple trough thesis,” which is that margins, the stock’s multiple, and revenue growth are all at trough levels. He thinks second quarter results will show signs of improving margins and strengthening retail sales. The key question, he adds, is what management says about the outlook for AWS. Positive commentary could be “an unlock” for the stock, says Mahaney.

RBC analyst Brad Erickson is bullish too, keeping an Outperform rating and $135 price target on Amazon shares. He says the company is likely to comment on July results at AWS, which could serve as a type of barometer for the rest of the quarter. High single digit growth for the July quarter, combined with signs of acceleration from there, “should be fine.”

Meanwhile, Erickson thinks most of the Amazon conference call Q&A will focus on the company’s generative AI strategy. The RBC analyst doesn’t expect detailed guidance on the company’s Gen AI business, but says that “in the event it does, this would be a positive.”

Amazon shares are up nearly 60% for the year to date.