With a gain of 55% year to date, besting the 18% rise in the S&P 500 index, Amazon (AMZN) stock ranks as one of the top performers in the market and tech in particular. The e-commerce giant's growth strategy is bearing fruit. And driven by some recent operating cost reductions, Amazon now has slimmer cost profile, which will lend to faster earnings growth in the quarters ahead.
Investors want to know if the company can maintain its strong momentum. The nation’s second-largest retailer is set to report second quarter fiscal 2023 earnings results after the closing bell Thursday. Some of the recent cost-saving measures include shutting down unprofitable businesses, reducing its global headcount and reprioritizing resources in an effort to right-size the business. The goal is to remain leaner and stronger.
Amazon is expected to report Q2 earnings per share of 35 cents, which would be a massive increase from the year-ago loss of 20 cents. Meanwhile, Q2 revenue is expected to be roughly $131 billion, reflecting an 8% increase from the previous year. But it’s not just the company’s profitability and margin profile to be excited about. There’s also Amazon Web Services, which has been the company’s main profit producer. Anchored by the AWS cloud platform, the company’s services segment is still enjoying exponential growth which has offset recent weakness in the retail segment.
All told, Amazon has many growth levers it can pull. "There's a lot to like about how our teams are delivering for customers," CEO Andy Jassy said in a recent press release. From a valuation perspective, while Amazon stock is not as cheap as it were at the start of the year, the shares still looks like a bargain relative to the company’s long-term potential. For that to matter in the near term, on Thursday beyond a top- and bottom line beat, investors will want strong profit guidance to support the long-term return investment thesis.
In the three months that ended March, the Seattle-based company is expected to earn 35 cents per share on revenue of $131.47 billion. This compares to the year-ago loss of 20 cents per share on revenue of $121.23 billion. For the full year, ending in December, earnings are expected to be $1.59 per share, reversing a year-ago loss of 27 cents, while full year revenue of $560.97 billion would rise 9.1% year over year.
Concerns over rising interest rates and inflation are present threats to consumer spending, which is an estimated 70% of the U.S. economic growth as a share of GDP. Aside from being a threat to future revenue, inflation is also driving up operating expenses for several companies, including Amazon, which has experienced decelerated profit growth. As the company is aggressively cutting costs, Amazon remains committed to investing in the long-term potential of its business.
Since the start of the quarter, revenue and earnings estimates have been revised higher, suggesting the market’s growing optimism about the company’s ability to navigate through the challenging inflationary environment. In the first quarter, Amazon beat on both the top and bottom lines, posting adjusted EPS of 31 cents per share which beat estimates by 10 cents. Q1 revenue of $127.36 surpassed Street estimates by $2.76 billion, rising 9.4% year over year.
Revenue was driven by the AWS cloud segment which grew 16% year over year to $21.4 billion, beating estimates of $21.3 billion. While AWS continues to have a strong pipeline for attracting new customers, investors will want to know when cloud growth will re-accelerate. Nevertheless, from a valuation perspective, Amazon stock should remain a staple in any growth portfolio for the next 12 to 18 months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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