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E-commerce and cloud computing giant Amazon (AMZN - Free Report) reports earnings Thursday, April 27 after the market close. The precarious nature of the current market regime makes this report quite significant.
Of particular interest to investors will be revenue numbers in AWS Cloud, as it has been a major driver of growth for Amazon. Its primary competitors in the cloud space, Microsoft (MSFT - Free Report) , and Alphabet (GOOGL - Free Report) reported earnings Tuesday evening, and provided interesting insights into what to expect from AMZN.
Amazon has been on a tear, rallying 25% YTD, considerably better performance than the S&P 500. However, investors shouldn’t forget how painful 2022 was for AMZN. The stock price more than halved in 2022, leaving Amazon shares still down almost -40% over the last two years, well below the performance of the index.
Image Source: Zacks Investment Research
Technical Setup
Amazon stock traded down to an area of strong buying interest over the last few months. After testing, and then trading below the pre-covid highs, AMZN stock price dove all the way down to the Covid-lows. But after testing the Covid-lows, buyers stepped in massively, pushing price back to the top of the range.
If Amazon can retake the pre-Covid highs ~$110 level, it should be an extremely bullish signal for the stock. Additionally, the $100 level seems to be a psychological level of interest, and I think so long ass price holds above there, investors can remain bullish.
Image Source: TradingView
Earnings Expectations
Considering the forecasted weakness in business and consumer spending broadly, analysts still have fairly strong expectations for Amazon. Sales are projected to grow 7.2% YoY to $125 billion for the current quarter.
Image Source: Zacks Investment Research
But analyst estimates have been falling over the last two months. Earnings for the current quarter have been revised lower by -12.5%, and because of the amount of downgrades Amazon currently exhibits a Zacks Rank #3 (Hold), indicating mixed earnings revisions.
Nonetheless, the Zacks Earnings ESP expects Amazon to beat estimates by 11.5%. Last quarter Amazon really blew away analyst expectations and reported earnings that were 40% above estimates.
Image Source: Zacks Investment Research
Cloud Computing
In the Q4 report, Amazon’s cloud computing segment reported 20% growth YoY, below Q3’s 28% growth, and Q2 33% growth. While 20% growth in sales is nothing to scoff at, the deceleration is an extremely important development, as AWS is a major engine for growth. Because of the shifting macroeconomic environment, firms have clearly tried to cut some of their cloud spending.
Microsoft reported better than expected earnings on Tuesday, beating both sales and earnings expectations. But Microsoft posted a considerable deceleration in its cloud services sales as well. Cloud services reported a 27% YoY growth in sales which has declined every quarter since at least Q3 2022. Additionally, while MSFT did beat estimates, they were very moderate expectations, barely projecting growth.
Alphabet too had very soft earnings expectations which they beat handily. GOOGL also followed the same trend as MSFT regarding slowing growth. Google cloud services grew 28% YoY, which again is a very impressive number, but still a quarter over quarter decline. Additionally, Alphabet reported its first profitable quarter in cloud services, which is a strong development.
These slowdowns are certainly not ringing any alarm bells – yet. Cloud is a maturing business, and at some point, growth was going to slow down. But investors should stay focused on Amazon’s cloud services growth numbers. AWS is the leading provider of cloud services so an unexpected slowdown may shake things up.
Valuation
Amazon is currently trading at a one-year forward price to sales ratio of 1.9x, which is well below its 10-year median of 2.7x and below the broad market average of 3.6x. This is a compelling valuation for the tech giant.
Image Source: Zacks Investment Research
Bottom Line
It is critical for investors to watch for the cloud services growth numbers from Amazon on Thursday’s earnings call. As the biggest player in the industry, owning 34% market share (MSFT is 2nd with 21%), its results are a bellwether for the sector more broadly.
Also important will be the e-commerce and retail results. Because Amazon is such a massive player in the retail industry its business results provide valuable insight into the spending habits of consumers.
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Amazon Earning Preview: Buy AMZN Stock Despite Slowing Cloud Growth?
E-commerce and cloud computing giant Amazon (AMZN - Free Report) reports earnings Thursday, April 27 after the market close. The precarious nature of the current market regime makes this report quite significant.
Of particular interest to investors will be revenue numbers in AWS Cloud, as it has been a major driver of growth for Amazon. Its primary competitors in the cloud space, Microsoft (MSFT - Free Report) , and Alphabet (GOOGL - Free Report) reported earnings Tuesday evening, and provided interesting insights into what to expect from AMZN.
Amazon has been on a tear, rallying 25% YTD, considerably better performance than the S&P 500. However, investors shouldn’t forget how painful 2022 was for AMZN. The stock price more than halved in 2022, leaving Amazon shares still down almost -40% over the last two years, well below the performance of the index.
Image Source: Zacks Investment Research
Technical Setup
Amazon stock traded down to an area of strong buying interest over the last few months. After testing, and then trading below the pre-covid highs, AMZN stock price dove all the way down to the Covid-lows. But after testing the Covid-lows, buyers stepped in massively, pushing price back to the top of the range.
If Amazon can retake the pre-Covid highs ~$110 level, it should be an extremely bullish signal for the stock. Additionally, the $100 level seems to be a psychological level of interest, and I think so long ass price holds above there, investors can remain bullish.
Image Source: TradingView
Earnings Expectations
Considering the forecasted weakness in business and consumer spending broadly, analysts still have fairly strong expectations for Amazon. Sales are projected to grow 7.2% YoY to $125 billion for the current quarter.
Image Source: Zacks Investment Research
But analyst estimates have been falling over the last two months. Earnings for the current quarter have been revised lower by -12.5%, and because of the amount of downgrades Amazon currently exhibits a Zacks Rank #3 (Hold), indicating mixed earnings revisions.
Nonetheless, the Zacks Earnings ESP expects Amazon to beat estimates by 11.5%. Last quarter Amazon really blew away analyst expectations and reported earnings that were 40% above estimates.
Image Source: Zacks Investment Research
Cloud Computing
In the Q4 report, Amazon’s cloud computing segment reported 20% growth YoY, below Q3’s 28% growth, and Q2 33% growth. While 20% growth in sales is nothing to scoff at, the deceleration is an extremely important development, as AWS is a major engine for growth. Because of the shifting macroeconomic environment, firms have clearly tried to cut some of their cloud spending.
Microsoft reported better than expected earnings on Tuesday, beating both sales and earnings expectations. But Microsoft posted a considerable deceleration in its cloud services sales as well. Cloud services reported a 27% YoY growth in sales which has declined every quarter since at least Q3 2022. Additionally, while MSFT did beat estimates, they were very moderate expectations, barely projecting growth.
Alphabet too had very soft earnings expectations which they beat handily. GOOGL also followed the same trend as MSFT regarding slowing growth. Google cloud services grew 28% YoY, which again is a very impressive number, but still a quarter over quarter decline. Additionally, Alphabet reported its first profitable quarter in cloud services, which is a strong development.
These slowdowns are certainly not ringing any alarm bells – yet. Cloud is a maturing business, and at some point, growth was going to slow down. But investors should stay focused on Amazon’s cloud services growth numbers. AWS is the leading provider of cloud services so an unexpected slowdown may shake things up.
Valuation
Amazon is currently trading at a one-year forward price to sales ratio of 1.9x, which is well below its 10-year median of 2.7x and below the broad market average of 3.6x. This is a compelling valuation for the tech giant.
Image Source: Zacks Investment Research
Bottom Line
It is critical for investors to watch for the cloud services growth numbers from Amazon on Thursday’s earnings call. As the biggest player in the industry, owning 34% market share (MSFT is 2nd with 21%), its results are a bellwether for the sector more broadly.
Also important will be the e-commerce and retail results. Because Amazon is such a massive player in the retail industry its business results provide valuable insight into the spending habits of consumers.