- Wall Street analysts expect Amazon to post higher earnings when it reports quarterly results on Thursday
- Expanding growth in Amazon’s cloud platform is a growing driver, according to analysts.
- However, a slowdown in consumer spending and investment by the company in other areas could be a headwind.
Wall Street is getting ready Amazon: After Thursday’s closing bell to deliver strong quarterly financial results, though uncertainty remains about how the company will navigate the slowdown in consumer spending.
Most analysts expect solid earnings and further upside for Amazon stock, driven by its cloud platform and advertising power. However, worries persist about slowing retail margins and Amazon’s growing investment in other areas of its business.
That includes Project Kuiper, Amazon’s initiative to deploy thousands of satellites for broadband, as well as investments in AI.
Here’s what analysts are saying ahead of the company’s earnings.
CFRA. Investment balance search
CFRA sees Amazon as having an impressive multi-year earnings and cash flow story, but the company is cautious about the near-term outlook.
“Growth may not be linear due to a muted consumer spending environment, AWS transaction volume and accelerated investments such as Project Kuiper, generative AI, same-day fulfillment and Prime Video digital content.”
Analyst Arun Sundaram said this would translate into a “modest” hit to third-quarter earnings. CFRA expects revenue to increase 10.5% year over year and GAAP operating profit to grow 36%. CFRA’s ratings are at the top of Amazon’s guideline range.
“Overall, investors will be looking for AMZN to have the right balance of growth versus investment,” Sundaram said.
It said that while Amazon’s operating margin will continue to grow through 2025, reinvestment in other areas of the business will slow this expansion.
CFRA cut its price target on Amazon to $219 per share on Oct. 21, indicating a 13% upside.
Bank of America. Different input results
BofA’s Justin Post advised investors to brace for a mixed bag of third-quarter results.
Bank of America rates consensus revenue estimates as too high and forecasts $157 billion for the quarter. However, the bank’s forecast for operating profit topped the consensus view of $15 billion.
The bank expects top growth drivers for the quarter to include Amazon Web Services, the company’s AI-led cloud computing platform. Margins here will be better than Wall Street expected, according to the Post
“AI demand likely improved further in Q3, and we believe investors can expect 20% year-over-year growth for Q3, which would suggest the largest Q3 in sequential dollars at $1.39 billion.” with,” he said.
Uncertainty in consumer spending could be a concern, and BofA expects a slight slowdown in discretionary retail sales growth.
The company has a “buy” rating on the stock and a $210 price target, suggesting a gain of 8.3% from current levels.
JPMorgan. AWS acceleration leaves room for optimism
JPMorgan cited Amazon’s expanding cloud platform and steady store growth as the main reasons for the stock’s rise.
The bank noted that optimization mitigation, workload migration and increasing monetization of AI will support further acceleration of AWS this year, leading to 20% year-to-date growth.
The company, in line with Bank of America, expects third-quarter net sales of $157 billion, below consensus estimates of $157.3 billion.
Meanwhile, retail profits faced headwinds in the latest quarter and consumers appear cautious about spending. Buyers looking for a deal weigh Amazon’s average sale prices, the bank said.
JPMorgan has an “overweight” rating and a $230 price target on Amazon. This represents an increase of 18.6% from the current level.
Wedbush securities. Don’t worry about rising investment costs
Wedbush Securities cheered Amazon’s growing cloud segment and revenue shift to high-margin advertising. Together, these should help offset the costs of the company’s investments elsewhere.
“We believe the risk/reward is attractive to earnings as investor expectations for 2H profitability moderate, AWS growth continues to accelerate, and ad momentum builds through 2025,” wrote a team of analysts led by Scott DeWitt. :
The company said investors have tempered margin expectations due to Amazon’s spending in new investment areas such as Project Kuiper. While this may require more investment from the company over time, Wedbush does not expect this to impact profitability in the near term.
Wedbush reiterated its “outperform” rating and $225 price target, implying a 16% gain from current levels.
Morgan Stanley. Bulls to 2025
Analysts led by Brian Novak focused on Amazon’s fourth-quarter guidance, suggesting the company’s earnings before interest and taxes may be lower than expected.
“We see AMZN’s high and increasing focus on lower-priced, lower-margin staples driving commodity margin pressure…which is holding back its N. America retail profit ramp. Expected discounting in a competitive holiday season (and the discerning consumer) creates further near-term uncertainty,” they said.
The bank expects fourth-quarter EBIT to come in at about $17.5 billion, 1% below consensus expectations.
But looking forward to 2025, the bank recommends holding the stock as retail pressure will be a short-term headwind. Corporate efficiencies and shipping costs will make lower-priced essentials the company’s way into next year, the bank predicts.
Morgan Stanley has a $210 price target on the stock, which is about 8% above Wednesday’s share price.