Financial Report Preview | Amazon Q3 financial report to be released soon, AWS growth and retail profit margin are highly anticipated

Zhitong
2024.10.28 08:13
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Amazon is set to release its third-quarter financial report on October 31st. Jefferies analysts are focusing on the strong performance of AWS and the uncertainty of retail profit margins. Revenue is expected to be $157 billion, with operating profit of $15 billion. AWS is expected to grow by 20% year-on-year, contributing an operating profit margin of 9.5%. Despite challenges in retail, Jefferies remains optimistic about Amazon's mid-term prospects, especially in the AI-driven cloud demand sector

According to the financial news app Zhitong Finance, Amazon (AMZN.US) is set to release its third-quarter financial report after the market closes on October 31st Eastern Time. Analysts at Jefferies are closely watching the strong performance of Amazon Web Services (AWS), but also mentioning the uncertainty surrounding retail profit margins. The firm expects Amazon's third-quarter revenue to reach $157 billion, very close to the Wall Street consensus of $157.3 billion.

In contrast, the analyst is more optimistic about the company's operating profit, expecting it to be $15 billion, 2.1% higher than the Wall Street consensus of $14.7 billion.

As Amazon's largest source of profit, AWS is under scrutiny. The Jefferies analyst wrote, "AWS continues to show strong growth momentum, with data indicating a possible year-on-year growth of up to 20%." The analyst stated that this could translate into a "significant" quarter-on-quarter growth.

The firm expects AWS to contribute 9.5% to the overall operating profit margin, higher than the previous quarter's 4.2%. However, the retail sector still faces challenges, with shifts in consumer demand affecting Amazon's self-operated business profit, third-party services, and advertising revenue.

Jefferies forecasts Amazon's fourth-quarter revenue to be between $179.5 billion and $186.5 billion, slightly lower than the Wall Street consensus of $186.4 billion. The firm also expects operating profit to be between $12 billion and $16 billion, while Visible Alpha's forecast is $17.4 billion.

The Jefferies analyst wrote, "Given the recent wage increases for Amazon warehouse employees, we have slightly lowered our profit expectations for the fourth quarter and 2025." "We now expect fourth-quarter profits to be $16.5 billion, lower than the previous forecast of $17.4 billion." Analysts also warned that based on Amazon's historical guidance trends, Wall Street may be overestimating the fourth-quarter guidance.

Despite recent concerns about retail profit margins and performance guidance, Jefferies remains optimistic about Amazon's medium-term prospects, especially in its exposure to AI-driven cloud demand.

They wrote, "The growth of AWS and its profit margin opportunities are key reasons to hold Amazon stock." "We also believe that if the shift in consumer demand normalizes, retail profit margins could potentially accelerate in the second half of 2025."

Jefferies rates Amazon stock as a buy, with a target price of $210, while the current stock price is around $184.71.

Previously, Amazon expected third-quarter revenue to be between $154 billion and $158 billion, with a 9.5% increase based on the midpoint. However, this expectation is still slightly lower than the market's double-digit growth expectations. Due to revenue and capital expenditure challenges, the company has been unable to meet double-digit growth expectations

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