According to data compiled by Bloomberg, analysts project around $187.32 billion in Q4 revenue and $1.7 in adjusted EPS, reflecting a 10% and 6% YoY increase, respectively.
Amazon is set to report its fourth quarter (Q4) 2024 earnings after the market closes on Thursday, 6 February 2025.
Previous Quarter Review
Amazon reported better-than-expected earnings and revenue for the third quarter, driven by growth in its cloud computing and advertising businesses.
Here are the results.
Earnings: $1.43 vs $1.14 per share expected by LSEG
Revenue: $158.88 billion vs $157.2 billion expected by LSEG
Wall Street is also watching several other numbers in the report:
Amazon Web Services: $27.4 billion vs. $27.5 billion expected, according to StreetAccount
Advertising: $14.3 billion vs. $14.3 billion expected, according to StreetAccount
In cloud, Amazon Web Services revenue was a hair below consensus estimates, but it’s growing faster than the same period last year. Sales grew 19% during the quarter compared to a year ago when sales accelerated by 12%. The company was navigating slowing growth in its cloud business last year as customers trimmed their budgets due to heightened economic concerns.
Q4 Results Outlook
Revenue Expectations and Growth Projections
Based on insights from Amazon's Q3 earnings call, the company projects Q4 net sales to range between $181.5 billion and $188.5 billion, indicating an approximate 9% year-over-year increase. Management highlighted that strong demand for generative AI services will continue to fuel AWS growth. However, similar to other major technology firms, Amazon faces capacity constraints in its data centers, which will temper growth in the near term. Despite this, management anticipates accelerated AI adoption over the long run.
Investment and Expansion Plans
To meet the surging demand for AI services, Amazon has outlined a capital expenditure plan of $75 billion for 2024, with projections for even higher investments in 2025. These expenditures are primarily allocated to AWS's expansion in AI chip infrastructure and data center enhancements. In addition, Amazon's advertising segment has recently emerged as a significant growth driver, achieving an 18.8% year-over-year revenue increase in Q3, which has contributed to enhanced profitability and is expected to have sustained momentum in Q4.
Consumer Behavior Trends and Holiday Sales Strategy
Despite the ongoing inflationary pressures and elevated interest rates dampening consumer demand for high-ticket items, Amazon has benefited from a consumer shift towards lower-priced goods. This shift has driven an increase in repeat purchases and larger basket sizes. Furthermore, Amazon maximized holiday season sales through strategic investments in same-day delivery infrastructure and promotional initiatives. Operational efficiencies, such as improved inventory distribution, robotics implementation, and regionalized fulfillment networks, have reduced costs and enhanced delivery speed.
Cost Reduction Strategies
Those familiar with Jeff Bezos' business philosophy understand his relentless focus on cost reduction. Within Amazon, every cost-saving measure translates to potential price reductions for customers, reinforcing its competitive edge.
AI Growth and AWS Positioning
As AI remains the most dynamic and rapidly expanding industry, AWS continues to capitalize on this trend. AWS's generative AI segment is experiencing triple-digit growth rates, bolstered by Amazon's recent $8 billion strategic investment in Anthropic. This investment enhances AWS's AI offerings and attracts enterprise customers, solidifying its leadership position. Additionally, Amazon Q, an AI-driven coding optimization initiative, is estimated to generate annual efficiency gains of approximately $260 million, further strengthening AWS's dual role as both a revenue driver and an internal efficiency enabler.
Analyst Opinions
Analysts' consensus view on AMZN stock is bullish, with an overall "Strong Buy" rating. Among 49 analysts covering the stock, 45 recommend a "Strong Buy," three suggest a "Moderate Buy," and one gives a "Hold" rating.
Amazon presents a compelling long-term investment opportunity, and a five-year valuation horizon offers meaningful insights. By January 2030, Amazon's trailing 12-month revenue is projected to reach $1.2 trillion, with an anticipated net income margin of 10%, largely driven by automation advancements. This translates to a forecasted net income of $120 billion.
Currently, Amazon trades at a modest price-to-sales ratio compared to its five-year historical average, primarily reflecting margin expansion amid a slowdown in revenue growth. While automation is expected to contribute to long-term margin improvements, significant impacts will take time to materialize. A conservative terminal price-to-earnings (P/E) ratio of 40 is applied, resulting in a January 2030 price target of $430 per share. With Amazon's current stock price at $225, this implies an annualized growth rate of 14%, slightly below the 15% return threshold required for a Buy rating.
Amazon's weighted average cost of capital (WACC) is 12.6%, with equity comprising 94.56% and debt at 5.44%. The cost of equity is estimated at 13.24%, while post-tax debt costs stand at 1.57%. Discounting the 2030 target price of $430 back to present value using the WACC results in an intrinsic value estimate of $240 per share, reflecting a margin of safety of 6.25%. Based on this valuation model, Amazon stock appears to be fairly valued at current levels.
