As the Q3 earnings season gains momentum, Amazon (NASDAQ:AMZN) is set to release its quarterly results on October 26, while tech giants like Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) will report their earnings after the bell today, and Meta Platforms (NASDAQ:META) is scheduled for tomorrow. Amazon witnessed a significant surge in its stock following its Q2 report, outperforming other FAANG stocks. Here’s an overview of Wall Street’s expectations for the e-commerce behemoth’s Q3 earnings and five critical aspects investors should keep an eye on in the report.

Amazon Q3 Earnings Preview

Analysts on Wall Street anticipate Amazon to report Q3 revenues of $141.6 billion, reflecting an 11.4% year-over-year increase. In the Q2 earnings call, the company forecasted Q3 revenues to fall within the range of $138 billion to $143 billion. Amazon also provided guidance for operating income ranging from $5.5 billion to $8.5 billion. Analysts predict a nearly doubled YoY Q3 per-share earnings of $0.58. It’s noteworthy that Amazon’s profits faced a significant dip in 2022 due to high inflation and surging wage costs. However, similar to several other major tech firms, Amazon has undertaken various cost-cutting measures, such as layoffs, pausing the construction of its HQ2 in Virginia, and reducing overhead expenses, which have begun to reflect positively in its bottom line. In Q2, Amazon reported an operating income of $7.7 billion, surpassing its prior guidance of $2 billion to $5.5 billion.

Key Aspects to Observe in Amazon’s Q3 Earnings Report

Given Amazon’s substantial presence across various industries, its Q3 earnings report holds particular significance. Here are the five key factors that deserve attention when Amazon unveils its Q3 results this week:

 

1. U.S. Consumer Commentary and Q4 Guidance: Monitoring Amazon’s commentary regarding the U.S. consumer is crucial. In contrast to retail giants like Macy’s (M), Target (TGT), and Dick’s Sporting Goods (DKS), which delivered bleak outlooks in their August earnings calls, Amazon, in the following month, announced plans to hire a record-breaking 250,000 seasonal employees for the holiday season, indicating optimism in holiday shopping trends. Additionally, Amazon’s Prime Big Deal Days in October received a better response compared to the previous year. However, economic indicators related to U.S. consumer health have been mixed. While retail sales saw a 0.7% rise in September, exceeding analysts’ expectations, consumer confidence has declined, indicating financial stress among consumers. Alongside insights into U.S. consumers, Amazon’s Q4 revenue guidance is eagerly anticipated, with consensus estimates forecasting a 12% increase to $167 billion for the quarter.

 

2. AWS Amid Macro Slowdown: Amazon Web Services (AWS) has been a focal point of interest in recent quarters. In Q2, AWS revenue growth slowed to 12%, its lowest since 2015, when Amazon began separate financial reporting. Nevertheless, it surpassed Wall Street’s expectations. During the Q2 earnings call, Amazon emphasized the “stabilization” of the AWS segment. Watching the revenue growth of AWS in Q3 for further indications of stability is vital.

 

3. Free Cash Flow Generation: Amazon’s free cash flow turned positive in the trailing 12-month period ending June 30 after consecutive quarters of improvement. Monitoring Amazon’s Q3 free cash flows is essential, as this metric significantly impacts the company’s valuation.

 

4. The FTC Lawsuit and a Potential Split: The Federal Trade Commission (FTC) filed an antitrust lawsuit against Amazon, accusing it of “illegally maintaining monopoly power.” The possibility of Amazon voluntarily splitting its business to evade regulatory scrutiny and potentially enhance shareholder value is a topic to watch for during the Q3 earnings call.

 

5. Competition from Chinese E-Commerce Companies: Chinese e-commerce platforms like Shein and Temu are gaining ground in the U.S. Amazon might provide insights into its strategies for countering these platforms, which have gained popularity among U.S. consumers during a period of inflation.

Wall Street’s Optimism for Amazon’s Q3 Earnings

Wall Street displays a bullish outlook for Amazon ahead of its Q3 earnings report. Last week, Oppenheimer analyst Jason Helfstein reiterated Amazon’s stock as “overweight” and considered it a top pick for 2024. Overall, Amazon’s stock is widely regarded as a Strong Buy, with 35 of 40 analysts rating it as such, and four more as a Moderate Buy. Only one analyst rates it as a Hold. The median target price of $169.51 represents a nearly 33% increase from current price levels. After the market’s recent decline, there is potential for a post-earnings rally for Amazon if the company reports a solid set of numbers, particularly given the reassuring commentary on AWS after the Q2 report.

Featured Image: Unsplash @ Christian Wiediger

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