Amazon earnings preview: Analysts watching AWS growth, retail margins, Project Kuiper
Analysts will be eyeing revenue growth for Amazon’s cloud computing unit and margins in its retail segment when the company reports third quarter earnings Thursday.
Wall Street expects $157.3 billion in revenue, on the high end of the company’s guidance, and earnings per share of $1.14, up from $0.94 in the year-ago quarter.
Investors are keeping a close eye on the impact of AI adoption on cloud computing giants. Both Google and Microsoft reported strong results for their respective cloud units this week.
Justin Post, an analyst with Bank of America, expects AWS revenue growth of 20% year-over-year, up from 12% growth in the year-ago period, and 18.7% in the second quarter.
“Non-AI and AI workloads likely improved in the quarter which fueled acceleration, and we think AWS is well-positioned to capture incremental demand given broad customer base and ongoing chip innovation,” Post wrote in a report last week.
Amazon reported lower-than-expected sales in the second quarter, even as profits nearly doubled. Amazon CEO Andy Jassy told analysts in August that the company is making a concerted effort to lower its “cost to serve,” enabling more sales of products at a lower average selling price.
Analysts with Morgan Stanley wrote this month that it sees Amazon’s “growing focus on lower-priced, lower-margin essentials driving merchandise margin pressure.”
“Expected discounting in a competitive holiday season (and picky discretionary consumer) create further near-term uncertainty,” the analysts noted.
Amazon also recently announced a wage increase for hourly warehouse workers and additional investment in its Delivery Service Partner program.
Morgan Stanley analysts noted that the company’s new push to increase the ratio of individual contributors to managers in its corporate workforce, laid out in a memo from Jassy in September, could lead to $2 to $4 billion in savings in 2025.
Project Kuiper, Amazon’s satellite internet business, is also on the radar as the company noted increased investment in the second quarter.
Analysts with Wedbush expect Amazon to start generating revenue from Kuiper in late 2025 or early 2026, “which will help to offset costs as the project continues to scale,” they said in a report this week.
Wedbush analysts are bullish about the company’s advertising business and expect a higher growth rate relative to the second quarter.
Amazon’s stock fell sharply following the second quarter earnings report but has rebounded in the past three months. Shares are up nearly 30% this year.