Here’s what Wall Street is Saying about Amazon Ahead of Earnings

Analyst calls Amazon a “best idea” into Q2 results

Amazon (AMZN) is scheduled to report results of its second quarter after the market close on Thursday, August 3, with a conference call scheduled for 5:30 pm ET. Here’s what to watch for:

EXPECTATIONS: 

For the second quarter, Amazon has said net sales are expected to be between $127B and $133B, or to grow between 5% and 10% compared with the same quarter of last year. The company expects to see anywhere from $2B to $5.5B in operating income for Q2, compared with $3.3B in the same quarter of last year.

Following the company’s last report, JPMorgan raised the firm’s price target on Amazon shares. Web Services revenue decelerating from 16% in Q1 to 11% in April was all it took to reverse the stock’s after-market gains, the analyst told investors at that time. However, the 16% was “far more of a surprise” than the 11%, and the deceleration is roughly in-line with what Microsoft (MSFT) indicated for Azure a few nights prior, added the firm. It argued that Amazon posted overall positive results and “had many good things to say.”

More recently, JPMorgan noted that macro pressures continue to weigh on consumer spending, with Q2 e-commerce growth below Q1 levels. However, trends stabilized through the quarter, the analyst told investors. The firm is expecting modest acceleration in the second half of 2023 and continued e-commerce share gains as Amazon and other retailers gain traction in key under-penetrated categories such as packaged goods, grocery, apparel and furniture. Amazon remains JPMorgan’s best idea in the internet sector. The firm continues to expect Web Services reacceleration in the second half of the year, continued retail margin expansion, and year-over-year decline in capex.

PRIME DAY: 

Amazon’s held its most recent Prime Day event from July 11 through July 12.

On July 13, Amazon announced the first day of Prime Day, July 11, was “the single largest sales day in company history.” Over the course of the two-day shopping event, Prime members “purchased more than 375M items worldwide and saved more than $2.5B on millions of deals across the Amazon store, helping make it the biggest Prime Day event ever,” the company added.

Adobe estimated that U.S. shoppers spent $12.7B online during Amazon’s 48-hour Prime Day event, which would be up 6.1% from a year ago but below estimates for 9.5% growth, reported Bloomberg’s Matt Day and Spencer Soper.

Meanwhile, Evercore ISI said the key disclosure in Amazon’s Prime Day release was that Prime members “purchased more than 375 million items worldwide,” which implies 25% year-over-year growth in items sold compared to last year’s Prime Day event. The analyst, who noted this as an acceleration from the consistent 20% year-over-year unit growth on Prime Days of the prior three years, called this “an intrinsically high growth rate, and especially at AMZN’s scale!” The firm, which estimates that Amazon generated about $11.9B in GMV and $6.2B in revenue over its two-day Prime Day holiday and views these results as “modestly better than we would have assumed”.

CLOUD: 

Last quarter, Amazon reported Amazon Web Services net sales of $21.35B, which was up from $18.44B in the same quarter of the prior year. AWS operating income declined to $5.12B from $6.52B in the prior year period.

Along with that report, Amazon CEO Andy Jassy said “while our AWS business navigates companies spending more cautiously in this macro environment, we continue to prioritize building long-term customer relationships both by helping customers save money and enabling them to more easily leverage technologies like Large Language Models and Generative AI with our uniquely cost-effective machine learning chips, managed Large Language Models, and AI code companion CodeWhisperer. We like the fundamentals we’re seeing in AWS, and believe there’s much growth ahead.”

On July 11, Evercore ISI added Amazon to the firm’s “TAP Outperform” list ahead of Q2 earnings season for the internet large cap group. The firm’s TAP Outperform call is based on the belief that Street estimates revisions are likely to be positive post the company’s earnings print. For Amazon, the “major unlock” would be an outlook for accelerating AWS revenue growth, but Evercore views this as “more of a possibility than a probability,” added the analyst.

On the same day, Wells Fargo added Amazon to the firm’s Signature Picks list and made no change to its rating. The company is at a positive inflection point in both North American retail and AWS, particularly with retail’s underappreciated margin upside, the analyst told investors.

AI: 

In late May, Mizuho raised the firm’s price target on Amazon, while the analyst also named Amazon a top pick for the second half of 2023. The firm expects multiple expansion as concerns on Amazon’s artificial intelligence market-position diminish. Recent channel checks with a leading channel partner indicate Web Services’ generative artificial intelligence demand has been accelerating due to its ease of transition and product differentiation, the analyst told investors. In addition, generative AI is priced meaningfully higher than conventional computing, so it is both revenue and margin accretive to Amazon, says Mizuho. As a result, it believes AWS revenue growth will likely trough in Q2 and start rebounding in the second half of 2023.

In a more recent note to investors. Tigress Financial raised the firm’s price target on Amazon.com. The integration of generative AI technology will enable “massive optimization of all business lines” and will be “the next catalyst driving its accelerating flywheel of revenue growth,” contends the analyst, who noted that the firm’s raised target represented a potential return of over 55% from then-current levels.

DEALS AND FIGHTS: 

On July 6, the European Commission said it had opened an in-depth investigation to assess, under the European Union Merger Regulation, the proposed acquisition of iRobot (IRBT) by Amazon.com. The Commission is “concerned that the transaction would allow Amazon to restrict competition in the market for robot vacuum cleaners and to strengthen its position as online marketplace provider.” The Commission’s preliminary investigation indicates that the transaction may allow Amazon to restrict competition in the market for the manufacturing and supply of robot vacuum cleaners.

On July 25, Amazon and iRobot announced that they have agreed to amend the existing terms of their merger agreement to reflect a change to the price per share. Under the amended terms, Amazon will pay $51.75 per share, revised from $61.00 per share. At the same time, iRobot has entered into a $200M financing facility to fund its ongoing operations. For Amazon, the change in price per share is expected to be largely offset by the planned increase in iRobot’s net debt under the new financing facility. Completion of the transaction remains subject to customary closing conditions, including regulatory approvals and approval of the amended merger agreement by iRobot’s stockholders. “Amazon and iRobot are working cooperatively with the relevant regulators in their review of the merger,” the companies stated.

On July 26, Josh Sisco of Politico reported that the Federal Trade Commission is finalizing an antitrust lawsuit against Amazon that could potentially break up parts of the company. The FTC has been investigating the company on multiple fronts and the case would be part of the Biden administration’s effort to curb the power of tech giants, said Sisco, citing four people with knowledge of the matter. The lawsuit could arrive as soon as August, and will likely question a number of Amazon’s business practices, the report added.

SENTIMENT: 

Click here to check out recent Media Buzz Sentiment on Amazon as measured by TipRanks.

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Originally Posted August 2, 2023 – Here’s what Wall Street is saying about Amazon ahead of earnings