When Amazon reveals its earnings after the close of trading on Thursday, all eyes will be on the outlook for Amazon Web Services (AWS), the company's renowned cloud computing platform.
For the June quarter, industry experts predict that Amazon (ticker: AMZN) will witness sales of $131.2 billion, marking an 8% increase from the previous year's quarter. Furthermore, the projected profit is expected to be 35 cents per share, a significant improvement from the 20-cent loss reported a year ago.
In their last financial update for the March quarter, Amazon foretold revenue figures ranging between $127 million and $133 billion for the third quarter, reflecting a 5% to 10% growth. Additionally, the company's guidance implies operating income between $2 billion and $5.5 billion.
It is important to note that AWS has experienced a slowdown in recent quarters as customers focus on optimizing their cloud expenditure, and this trend is set to continue. According to industry consensus monitored by FactSet, AWS revenue for the quarter is expected to reach $21.7 billion, showing a 10% increase from the previous year. This growth rate is notably lower than the nearly 40% growth level observed in the fourth quarter of 2021. Analysts currently estimate that AWS will grow by 10.2% in the September quarter, and investors' reaction to this quarter's results will undoubtedly depend on what Amazon reveals about the future growth of AWS.
While Street estimates project second-quarter revenue for online stores at $54.2 billion, reflecting a 6.5% growth, third-party seller services are anticipated to generate $31 billion in revenue, marking a substantial 13.1% increase. Subscription services, on the other hand, are projected to reach $9.7 billion, with an 11% growth rate. Furthermore, advertising revenue is forecasted to be $10.3 billion, exhibiting an 18% increase.
Moving forward to the September quarter, Street estimates suggest an overall revenue of $137.5 billion and a profit of 41 cents per share.
Strong Results from Cloud Businesses Boost AWS Outlook
Evercore ISI analyst Mark Mahaney, who has an Outperform rating and $150 price target on Amazon shares, believes that the strong performance of Microsoft (MSFT) and Meta Platforms (META) in their cloud businesses has significantly reduced the risk factor for Amazon Web Services (AWS) this quarter.
Mahaney, a top pick advocate for Amazon, introduces his "triple trough thesis," which emphasizes that margins, the stock's multiple, and revenue growth are all currently at their lowest levels. He anticipates that the second quarter results will demonstrate improvements in margins and strengthen retail sales. However, the crucial factor lies in what management has to say about the future of AWS. A positive outlook from management could potentially unlock the stock's potential, according to Mahaney.
RBC analyst Brad Erickson also expresses bullish sentiments, maintaining an Outperform rating and a $135 price target on Amazon shares. Erickson predicts that the company will discuss the July results in relation to AWS, which could serve as an indicator for the remainder of the quarter. If the July quarter shows high single-digit growth and signs of continued acceleration, Erickson believes this would be more than satisfactory.
Additionally, Erickson expects a significant portion of the Amazon conference call Q&A to revolve around the company's generative AI strategy. While he does not anticipate detailed guidance on Amazon's Gen AI business, he highlights that such insight would be seen as a positive development.
Amazon shares have shown impressive growth of nearly 60% year-to-date.
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