Summary
Wall Street is optimistic about Amazon stock,Jefferies expects additional Prime Daycouldadd anextra $4.1bn insales to Amazon’stopline. Also, keep an eye on whether AWS revenue growth rate will reach 30% and the development of its advertising market.
Amazon(NASDAQ: AMZN) is scheduled to announce Q3 earnings results after the market closes on next Thursday, October 27. Analysts anticipate Amazon’s revenues to reach $127.938 billion, Amazon is expected to post earnings of $0.422 per share.
Overall, Wall Street is optimistic about Amazon stock, with a Buy consensus rating based on 55 Buys, 2 Holds, and 1 Sells. The average price target of $166.85 implies a 45% upside potential from current levels.
Latest Results
It reported a net loss of 20 cents per share and net sales of $121.2 billion in Q2, up 7% year-over-year. Over 300 million items were sold in its Prime Day event held July 12 and 13, with members buying 100,000 items per minute.
Q3 Guidance
The company expects Q3 net sales to be in the range of $125 billion to $130 billion, up 13% to 17% year-over-year. Operating income for Q3 will be between $0 and $3.5 billion, compared with $4.9 billion in Q3 2021.
3 Things To Watch Before Q3 Earnings Release
1. Additional Prime Day Could Add an Extra $4.1bn in Sales to Amazon’s Topline
Amazon has announced an unprecedented second Prime Shopping Day, which will span over 2 days starting on October 11th.
Jefferies analyst Brent Thill has argued that the Prime Day event could add an extra $4.1bn in sales to Amazon’s topline, and thus help it to push the annual year-over-year revenue increase to about 14% -- but still the lowest growth rate on record.
Shopping events are shifting earlier this year because spending during the holidays is expected to be weaker due to inflation and other macroeconomic issues. Per Adobe Analytics, online sales are only expected to rise 2.5% in November and December this year, compared to 8.6% last year. This will be the slowest increase since 2015.
2. Whether AWS Revenue Growth Rate Will Reach 30% Is a Key Issue
AWS is the crown jewel. Just under 20% of Amazon's total revenues is AWS. Its market share in the $200 billion worldwide cloud infrastructure market amounted to 34% in Q2 2022, still exceeding the combined market share of its two largest competitors, Microsoft Azure and Google Cloud.
According to Andreea & Jamie’s view, they see Amazon shares achieving a CAGR through to 2026 of 2%, 16%, and 39% in bear, base, and bull case scenarios. For the bull case, it makes sense considering AWS has EBIT margins of 31% over the past 12 months, and it still has room to scale and expand these margins further.
For the bearish case, AWS will still perform better than retail, but not by enough to have a huge impact on margins, especially as retail loses steam.
3. Advertising Has a Long Runway to International Market
Management noted on its Q2 2022 earnings call that while the majority of advertising revenue is in North America, the company is making inroads into the international markets and expanding the array of advertising products from its consumer websites into video opportunities, e.g., its Prime Video, Thursday Night Football programming, FireTV, Freevee channels, Twitch, Amazon Music, among other areas.
Mizuho analyst James Lee said Amazon’s SSS-ad-spending growth accelerated 15 points in 3Q22 due to July’s Prime Day, and ad-pricing stabilized in CPG and several key discretionary categories after several quarters of consistent decline, indicating pricing has firmed, and Q4 should turn positive.
Analyst Opinions
JPMorgan analysts Nicholas Jones offer an Overweight rating and a $185 price target on it. Retail concerns were being driven by macro headwinds and uncertainty around how Amazon would fare in a recessionary environment, it expected higher in-stock inventory levels and faster delivery speeds would be key drivers. Also, JPMorgan was anticipating 31% growth in AWS in Q3.
Jefferies analyst Brent Thill had a Buy rating and a $165 price target on it. It is facing $12B-$16B of cost headwinds in 2022, resulting from a combination of inflation, lower productivity and fixed cost deleverage. It realized a $2B sequential cost reduction in Q2. It is expected to continue reducing costs throughout 2022, which should help drive growth in operating income even if macro pressures cause a slowdown in sales.
Cowen analyst John Blackledge had an outperform rating and a $195price target on it. It estimated operating income was $4.5 billion, above guidance of $0-3.5 billion and the consensus of $3.1 billion on lower gas prices and better fulfillment utilization. It forecasted its annual revenue growth of 14.7% annually in 2023-2027 (vs. 14.9% prior) and annual operating income growth of 41% vs. (vs. 44% prior).