Amazon’s Earnings Preview: AI, Advertising, and a "Gangster Move" Drive Growth
Amazon is poised to report its second-quarter earnings after the bell on Thursday, with Wall Street eagerly awaiting insights into the company’s performance in key areas like cloud computing, advertising, and live sports. Amidst a mixed earnings season for tech giants, Amazon’s earnings call is anticipated to offer a glimpse into the evolving landscape of the industry.
Key Takeaways:
- Revenue Growth Accelerating: Amazon’s revenue is projected to surge 10.5% year-over-year, driven by the expansion of its advertising business and demand for cloud services, even as its growth rate remains relatively modest compared to historical levels.
- Amazon Web Services (AWS) in Focus: Analysts are keeping a close watch on AWS’ performance, particularly its AI offerings, as it faces competition from Microsoft Azure and Google Cloud. AWS is expected to report growth of 17.6% during the quarter, according to StreetAccount.
- Advertising Powerhouse: Amazon’s advertising business continues to be a major growth engine, anticipated to generate revenue growth of 22% in the second quarter. The company entered the streaming advertising market this year by introducing ads to Prime Video, a move analysts have hailed as a "gangster move" that could propel Amazon to become an "advertising powerhouse."
- Live Sports Push: Amazon’s acquisition of a third rights partnership in the NBA’s new 11-year TV deal underscores its foray into live sports, further boosting its advertising business and Prime Video platform.
- Profit Rebound: Amazon’s profit has rebounded significantly over the past year, driven by cost-cutting measures implemented under CEO Andy Jassy. Operating income is expected to expand by approximately 79% year-over-year in the second quarter.
Deep Dive into the Numbers
Analysts polled by LSEG are expecting Amazon to report earnings per share of $1.03 and revenue of $148.56 billion for the second quarter. Additionally, StreetAccount forecasts AWS revenue at $26 billion and advertising revenue at $13 billion.
Cloud Computing: A Key Battleground
The growth of cloud computing, particularly in the realm of artificial intelligence (AI), is a major area of focus for Amazon. Microsoft Azure and Google Cloud have seen strong growth in AI, with Microsoft reporting a 29% increase in Azure revenue and Google Cloud experiencing similar growth rates.
While Amazon’s AWS leads the cloud infrastructure market, analysts anticipate a more modest 17.6% growth in the second quarter. However, BofA Securities remains optimistic, citing Google Cloud’s strong performance as a positive sign for AWS. They believe that AWS is poised to benefit from growth in backlog revenue and increasing demand from customers training their AI models.
A Focus on Cost Efficiency
Under Andy Jassy’s leadership, Amazon has been prioritizing cost efficiency. The company has implemented significant cost-cutting measures, including layoffs of over 27,000 employees since late 2022. These measures have resulted in a sharp rebound in profit, with operating income soaring 200% in the first quarter.
Advertising on the Rise
Amazon’s advertising business has become a major driver of growth and profit. The segment saw a 24% year-over-year revenue increase in the first quarter and is expected to continue its rapid growth trajectory with a projected 22% increase in the second quarter.
The company’s decision to introduce advertising into Prime Video has been met with positive reactions from analysts. Loop Capital described it as a "gangster move" that will help Amazon become an "advertising powerhouse." The analysts predict that Amazon’s advertising business could generate as much as $150 billion in annual sales by the end of the decade, up from $47 billion in 2023.
Sports: A New Growth Avenue
Amazon’s recent acquisition of a rights partnership in the NBA’s new 11-year TV deal signals its commitment to live sports. This move is expected to boost its advertising business and Prime Video platform, attracting new Prime subscribers and driving purchases on its online store.
Amazon’s Future Outlook
Amazon’s stock has performed well this year, up 23%, outperforming the Nasdaq’s 17% gain. Its strong performance is driven by its growing advertising business, continued growth in cloud computing, and aggressive cost-cutting measures. As the company enters new markets like live sports, its future earnings trajectory is likely to be closely watched by investors.
